UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| [X] | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | | SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 20142017 |
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| [ ] | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | | SECURITIES EXCHANGE ACT OF 1934 |
| Commission File Number 1-5397 |
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | 22-1467904 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
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| One ADP Boulevard, Roseland, New Jersey | 07068 |
(Address of principal executive offices) | (Zip Code) |
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Registrant's telephone number, including area code: 973-974-5000
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| Securities registered pursuant to Section 12(b) of the Act: | |
| Title of each class | Name of each exchange on which registered |
Common Stock, $0.10 Par Value (voting)
| NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x] No [ ]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [x]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. |
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Large accelerated filer [x] | | Accelerated filer [ ] |
| Non-accelerated filer [ ] | (Do not check if a smaller reporting company) | Smaller reporting company [ ] |
| Emerging growth company [ ] | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] YesNo [x] 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'sRegistrant’s most recently completed second fiscal quarter was approximately $38,838,719,941.$39,603,050,847. On July 31, 20142017 there were 480,912,107444,374,752 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Registrant's Proxy Statement for its 20142017 Annual Meeting of Stockholders. | Part III |
Table of Contents
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| Part I | | |
| Item 1. | Business | |
| Item 1A. | Risk Factors | |
| Item 1B. | Unresolved Staff Comments | |
| Item 2. | Properties | |
| Item 3. | Legal Proceedings | |
| Item 4. | Mine Safety Disclosures | |
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| Part II | | |
| Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities | |
| Item 6. | Selected Financial Data | |
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 8. | Financial Statements and Supplementary Data | |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| Item 9A. | Controls and Procedures | |
| Item 9B. | Other Information | |
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| Part III | | |
| Item 10. | Directors, Executive Officers and Corporate Governance | |
| Item 11. | Executive Compensation | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
| Item 14. | Principal Accounting Fees and Services | |
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| Part IV. | | |
| Item 15. | Exhibits, Financial Statement Schedules | |
| Signatures | | |
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Part I
Item 1. Business
CORPORATE BACKGROUND
General
ADP® was founded in 1949 on an innovative ideaidea: to help business owners focus on core business activities by relieving them fromof certain administrative tasks such as payroll. Automatic Data Processing, Inc. was incorporated in the State of Delaware in June 1961 and completed its initial public offering in September 1961. TodayA pioneer in business process outsourcing, today we are one of the world'sworld’s leading providers of human capital management (“HCM”) solutions to employers, as well as integrated computing solutions to vehicle dealers around the world. We offeroffering solutions to businesses of all sizes, whether they have simple or complex needs, andneeds. We serve approximately 637,000700,000 clients in more than 125 countries.110 countries and territories. Our common stock is listed on the NASDAQ Global Select Market® under the symbol “ADP”.
“ADP.”
When we refer to “we”, “us”, “our”, “ADP”,“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.
Available Information
Our corporate website, www.adp.com, provides materials for investors and information about our solutions and services. ADP'sADP’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 StatementStatements for our Annual MeetingMeetings of Stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission (SEC)(“SEC”) and are also available aton the SEC'sSEC’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.
BUSINESS OVERVIEW
ADP'sADP’s Mission and Strategy
For 65 years, ADP’s mission has beenis to helppower organizations unlock theirwith insightful solutions that drive business potential with our insightful solutions.success. Our commitment to service excellence liesis at the core of our relationship with each one of our clients, whether a small, midsizedmid-sized or large organization operating in one or multiple countries.countries around the world. We innovate to deliver new productssolutions that anticipate and services that anticipatemeet client needs in all of our markets. We help businesses focus on and optimize thetheir most important investment they make - their investment in– their people. From recruitment to talent management to retirement, our unique combination of expertise and technology offers insights that help our clients leverage human capital management (HCM)HCM to drive better business results.
Our future success also depends on our recruiting, hiring, developing and retaining highly qualified, motivated and diverse talent. Predicated on these priorities, our business strategy is based uponon the following three strategic pillars, which are designed to position ADP as the global market leader in technology-enabled HCM services:
grow our integratedGrow a complete suite of cloud-based HCM benefits, and payroll solutions to serve the U.S. market;solutions;
invest to growGrow and scale our HRmarket-leading Human Resources (“HR”) Business Process Outsourcing (BPO) solutions by leveraging our platforms and processes; and
leverageLeverage our global presence to offer clients HCM benefits, and payroll solutions where they do business.
Reportable Segments
ADP's threeADP’s two reportable business segments are:are Employer Services;Services and Professional Employer Organization (PEO) Services; and Dealer(“PEO”) Services. For financial data by segment and by geographic area, see Note 15 to the “Consolidated Financial Statements” contained in this Annual Report on Form 10-K.
On April 10, 2014, we announced that our Board of Directors approved a plan to separate our Dealer Services business into an independent publicly traded company through a tax-free spin-off of 100% of our Dealer Services business to ADP shareholders. The spin-off is subject to required regulatory approvals and reviews and we expect to complete the separation by October 2014. For more information on the spin-off of our Dealer Services business, see Note 2 to the “Consolidated Financial Statements” contained in this Annual Report on Form 10-K.
Employer Services. Our Employer Services is our largest segment with 36,000 associates in 35 countries. Employer Services offers a comprehensive range of business outsourcingHR Business Process Outsourcing and technology-enabled HCM solutions, including:solutions. These offerings include:
Payroll Services
Benefits Administration
Talent Management
Human ResourcesHR Management
Time and Attendance Management
Insurance Services
Retirement Services
Tax and Compliance and Payment SolutionsServices
Employer Services’ approach to the market is to deliver solutions and services that best meet clients’ requirements. Employer Services serves clients ranging from single-employee small businesses with fewer than 50 employees to large enterprises with multinational operations.tens of thousands of employees around the world.
Professional Employer Organization (PEO) Services. ADP'sADP’s PEO business, called ADP TotalSource®TotalSource®, provides approximately 7,800serves more than 10,700 clients with comprehensive employment administration outsourcing solutions through a co-employment relationship in which employees who work atfor a client's locationclient (referred to as “worksite employees”) are co-employed by us and the client. ADP TotalSource is the largest PEO in the United States based on the number of worksite employees, serving approximately 340,000more than 490,000 worksite employees in all 50 states.
Dealer Services. Dealer Services provides integrated dealer management systems, digital marketing/advertising solutionsstates, and other business management solutions to retailers, distributors and manufacturers of automobiles, minivans, sport utility vehicles, light and heavy trucks, construction equipment, agricultural equipment, motorcycles, boats and other marine vehicles and recreational vehicles. Dealer Services provides solutions tooperates as a diverse client base throughoutCertified Professional Employer Organization under the United States and in approximately 100 additional countries internationally, serving more than 26,000 automotive retailers and original equipment manufacturers.Internal Revenue Code.
PRODUCTS AND SERVICES
Employer Services’ Products and Services
Human Capital Management (HCM).Management. In order to serve the unique needs of diverse types of businesses, ADP provides a range of solutions, via a softwaresoftware- and service-based delivery model, which businesses of all types and sizes can use to recruit, staff, pay, manage, and retain employees. We serve more than 430,000570,000 clients via ADP'sADP’s cloud-based strategic software as a service (SaaS) offerings, commonly referred to as "the cloud."(“SaaS”) offerings. As a leader in the growing HR Business Process Outsourcing (BPO) market, we also offer fully integratedseamless outsourcing solutions that enable our clients to outsource their HR, time and attendance, management, payroll, and benefits administration and talent management functions to ADP.ADP, and through the ADP DataCloud we provide clients with in-depth, data-driven workforce and business insights. Through the ADP DataCloud, we provide clients with a workforce intelligence engine that enables them to make critical HR decisions that power workforce and business productivity, performance and alignment. In addition, our mobile applications enable businesses to process their payroll, and gives more than 2.5give approximately 12 million of our clients'clients’ employees convenient access to their benefits, payroll, time and attendance and HR information, via multiple mobile device platforms, around the world and in more than 27 languages. ADP has also opened access to developers and system integrators to certain of our platforms’ Application Programming Interface libraries through the ADP Marketplace. With ADP Marketplace, clients can integrate employee data from ADP core services across their other business systems, providers or platforms. This access enables the exchange of client data housed in ADP's databases in order to create a unified HCM ecosystem for clients informed by a single repository of their workforce data.
Integrated HCM SolutionsSolutions.. Our premier suite of human capital managementHCM products offers integratedcomplete solutions tothat assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement:
RUN Powered by ADP® is used by more than 380,000510,000 small businesses.businesses in the United States. It combines a software platform for managing small business payroll, human resourcesHR management and tax compliance administration, with 24/7 service and support from our team of small business experts. RUN Powered by ADP also integrates with other available ADP services,solutions, such as time and attendance tracking, workersmanagement, workers’ compensation insurance premium payment plans, and certain retirement plans.
ADP Resource® is a comprehensive human resources management outsourcing solution for small businesses that offers payroll and tax administration, recruitment and selection, employee assistance, employee training programs, and risk management and safety programs. ADP Resource also integrates with other available ADP services, such as 401(k) plan administration services and workers compensation insurance premium payment plans.
ADP Workforce Now® is a flexible HCM solution used by more than 50,000 midsized60,000 mid-sized businesses to manage their employees across more than 30 countries. In addition, ADP Workforce Now puts powerful mobile HR solutions
in the hands of client employees, and opens access to developers and system integrators through the platform’s Application Programming Interface (API) Library.employees. More businesses use ADP Workforce Now than any other HCM solution designed for the midmarket today.mid-sized businesses.
ADP Vantage HCM® is a solution for large enterprises with more than 1,000 employees.in the United States. It offers a comprehensive set of human capital managementHCM capabilities within a single solution that unifies the five major areas of HCM: human resourcesHR management, benefits administration, payroll services, time and attendance management, and talent management.
ADP® GlobalView® HCM is a solution for multinational organizations of all sizes. As an integrated and flexible infrastructure supported by a team of experts, ADP GlobalView®GlobalView HCM allows companies of all sizes – from those with small and ADP Streamline® offer HCM solutionsmid-sized operations to multinational companies. GlobalView allows the largest multinational clientscorporations – to standardize their HCM strategies across geographical regions, including multi-countryglobally (including payroll, HR, talent, time and human resourceslabor, and benefits management) and adapt to changing local needs, while helping to drive overall organizational agility and engagement.
Outside the United States, ADP offers comprehensive HCM solutions on local, country-specific platforms. These suites of services offer various combinations of payroll services, HR management, time and attendance management, talent management and time and attendance management. ADP Streamline® offers global payroll processing and human resources administration services to businesses with small and midsized operationsbenefits management, depending on the country in multiple countries. ADP GlobalView Select combines GlobalView and Streamline offerings into one integratedwhich the solution that allows a large multinational client to cover its multi-country payroll and other HCM needs across multiple countries covering the full range of its large, midsized and small operations.is provided.
Payroll Services. ADP pays approximately 26 million (approximately 1 out of every 6) workers in the United States, and approximately 13 million workers outside the United States. ADP provides flexible payroll services to employers of all sizes, including the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports. ADP provides employers with a wide range of payroll options, ranging from manually calling in their payroll to our specialists;including entering their payroll data online with an internet-basedInternet-based solution or via a mobile device; ordevice, and outsourcing their entire payroll process to ADP. ADP also enables its largest clients to interfaceconnect their major enterprise resource planning (ERP)(“ERP”) applications with ADP's outsourcedADP’s payroll services. Employers can choose a variety of payroll payment options ranging from professionally printed checks to ADP'sADP’s electronic wage payment and, in the United States, payroll card solutions. On behalf of our clients in the United States, ADP also prepares and files federal, state and local payroll tax returns and quarterly and annual Social Security, Medicare, and federal, state and local income tax withholding reports, on our clients' behalf.and prepares and files similar reports internationally. In addition, as part of our W-2 managementpayroll services globally, ADP supplies year-end regulatory and legislative tax statements and other forms to our clients'clients’ employees. For those clients in the United States who choose to process payroll in-house, ADP also deliversoffers our Tax Compliance and PaymentCompliance Solutions described below.
Benefits Administration. In the United States, ADP provides flexible solutions for outsourced employee benefits administration. Employee benefits administration options in the United States include health and welfare administration, spending account management (health care spending accounts, dependent care spending accounts, health reimbursement arrangements, health savings accounts, commuter benefits, and employee reimbursement services), COBRA administration, direct bill services, leave administration services, insurance carrier enrollment services, employee communication services, and dependent verification services. In addition, ADP benefits administration solutions offer employers an efficient cloud-based eligibility and enrollment system. Itsystem that provides their employees with tools, communications, and other resources they need to understand their benefits options and make informed choices. In addition, ADP provides tools and solutions to assist employers in meeting the demands of health care reform and their related employer responsibilities, as well as strategic insight into employer trends.
Talent Management. ADP'sADP’s Talent Management Solutionssolutions simplify and improve the talent acquisition, management, and performance managementactivation process from recruitment to ongoing employee engagement and development. ADP's proprietary recruiting automation platform helpsADP’s talent acquisition solutions help employers find, recruit, screen and hireon-board talent quickly and cost effectively. Employers can also meet their hiring needs by outsourcing their internal recruitment function to ADP. ADP's pre-employment services enable employers to track candidates, screen candidate backgrounds, and integrate data to facilitate the onboarding process for new hires. ADP'sADP’s talent management solutions provide performance, learning, succession and compensation management applications provide tools to automate the entire performance management process from goal planning to employee evaluations andthat help employers align compensation with employee performance within budgetary constraints. Integrated with ADP's performance management applications, ADP's career development and succession management solutions offer tools that allow employeesgoals to build and update their employee profiles, search for potential positions within the organization, and create-forward looking career paths,outcomes, while enabling managers to identify and mitigate potential retention risks. In addition, ADP's learning managementADP’s talent activation solutions provide a single point of accessinclude research-based tools that drive employee engagement and leadership development, which in turn help clients drive employee performance and reliably measure the impact in relation to learning and knowledge management capabilities via multiple online delivery methods.business outcomes.
Human Resources Management. Commonly referred to as Human Resource Information Systems (HRIS), ADP'sADP’s Human Resources Management Solutions provide employers with a single sourcesystem of record to support the entry, validation, maintenance, and reporting of data required for effective HR management, such asincluding employee names, addresses, job types, salary grades, employment history, and educational background. ADP'sADP’s Human Resources Management Solutions can also be integratedcombined with ADP'sADP’s Talent Management Solutions and other HCM offerings.
Time and Attendance Management. ADP offers multiple options for employers of all sizes to collect employee time and attendance information, including electronic timesheets, badge cards, biometric and touch screentouch-screen time clocks, telephone/interactive voice response, and mobile smartphones and tablets. ADP'sADP’s time and attendance tracking tools simplify employee scheduling and automate the calculation and reporting of hours worked, helping employers consistently enforce leave and attendance policies, more consistently, control overtime, and manage compliance with wage and hour regulations.
Insurance Services. ADPADP’s Insurance Services business, in conjunction with our licensed insurance agency, Automatic Data Processing Insurance Agency, Inc., facilitates access in the United States to workersworkers’ compensation and group health insurance for small and midsizedmid-sized clients through a variety of insurance carriers. ADP'sADP’s automated Pay-by-Pay® premium payment program calculates and collects workers'workers’ compensation premium payments each pay period.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 401(k) (including “safe harbor” 401(k) and Roth 401(k)), profit sharing (including new comparability), SIMPLE IRA, 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'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 a subsidiary that is a registered investment adviser under the
Investment Advisers Act of 1940, as amended (the “Advisers Act”). ADP Retirement Services also offers trustee services through a third party.
Tax and Compliance and Payment Solutions
Services
ADP SmartCompliance. In the United States, ADP SmartCompliance® integrates client data delivered from ADP's integrated HCM platforms or third-party payroll, HR and financial systems into a single, cloud-based platform enabling clients to consolidate their data in one location. ADP’s specialized teams use the data to work with clients to help them manage changing regulatory landscapes and improve business processes. ADP SmartCompliance integrates several HCM-related compliance processes, including health care reform under the U.S. Patient Protection and Affordable Care Act, as amended (the "Affordable Care Act") employment tax, wage payments, tax credits, wage garnishments, unemployment claims, and employment verifications.
ADP SmartCompliance Employment Tax Services. As part of ADP'sADP’s employment tax services in the United States, ADP prepares and files employment tax returns on our clients'clients’ behalf with federal, state, and local tax agencies. In connection with these services, ADP collects federal, state, and local employment taxes from clients and remits these taxes, as appropriate, to the appropriate taxing agencies via an electronic interface with overapproximately 7,000 federal, state, and local tax agencies in the United States.agencies. ADP also responds to inquiries from tax agencies and assists with filing tax protests on the clients' behalf.agencies. In addition to our full service payrollfull-service employment tax solution, ADP offers a software solution for do-it-yourself employment tax management that can complement a client'sclient’s in-house payroll system. In our fiscal year ended June 30, 20142017 (“fiscal 2014”2017”), ADP in the United States processed and delivered approximately 5361 million employee year-end tax statements and approximately 44 million employer payroll tax returns and deposits, andstatements. In addition, we moved approximately $1.5$1.85 trillion in client funds to taxing and other agencies and to our clients'clients’ employees and other payees via electronic transfer, direct deposit, and ADPCheckTM.check.
Tax Credits Services. ADP Tax Credits Services helps clients take advantage of tax credit opportunities as they hire new employees, including federal, state, and local tax credits based on geography, demographics, and other criteria such as work opportunity tax credits, federal empowerment zone employment credits, economic development incentives, training grants, and many other incentives. Integrating the entire process with clients' existing hiring programs, ADP Tax Credits Services helps clients screen job applicants and process eligibility forms, monitor and manage screening and form compliance, submit forms to state agencies for tax credit certification, calculate credits, and produce a detailed audit trail.
SmartCompliance Wage Garnishment Services. ADP offers an integrated solution to help our clients manage the wage garnishment process through integration with the client's payroll system. As part of this comprehensive service, ADP also helps process required correspondence to payee agencies, lien processing and order evaluation, and notices. ADP's wage garnishment services also includes a call center to field garnishment-related inquiries from employees, payees, and other third parties.
Unemployment Claims Management. ADP offers a single-source solution to help manage the entire unemployment claims process, including pre-separation planning, claim protests and administration, appeal processing, hearing representation, and audits of benefit charges.
Wage Payment and Pay Card SolutionsPayments. In the United States, in addition to ADPCheck, ADP'sADP’s traditional payroll check offering, ADP offers electronic payroll disbursement options that can be integrated with the client'sclients’ payroll systems and ERP applications. With ALINE Pay by ADP®, payroll can be disbursed via ALINE Check by ADP®, direct deposit, or the ALINE Card by ADP®, a network-branded payroll card. ALINE Check providesby ADP gives employees with an independent and convenient self-issued meansthe ability to receive wages through a self-completed payroll check that includes the standard features available withcan be negotiated just as a traditionally-issuedtraditionally issued payroll check. Using the ALINE Card by ADP, employees can access their payroll funds immediately, in several ways, including via a network member bank or an ATM, or point of sale terminal. The ALINE Card can also be used to make purchases or pay bills. Additional features of the ALINE Card include the ability tobills, load additional funds onto the card, receive electronic payments such asincluding government benefits or tax refunds, and transfer funds from the card to a U.S. bank account.account in the United States.
ADP SmartCompliance - Other ADP Solutions. Our other ADP SmartCompliance solutions include:
Tax Credits. ADP helps clients in the United States take advantage of tax credit and incentive opportunities as they hire new employees and expand or relocate their business operations, based on geography, demographics, and other criteria, including work opportunity tax credits, federal empowerment zone employment credits, economic development incentives, and training grants.
6Wage Garnishments. ADP offers an integrated solution to help our clients manage the wage garnishment process through integration with their payroll systems. In the United States, ADP helps employers process and submit required correspondence and responses to federal and state agencies, courts and third parties.
Unemployment Claims. ADP offersa single-source solution to help manage the entire unemployment claims process in the United States, from pre-separation planning to claim protests to audits.
Employment Verification. ADP offers an automated solution to securely verify employment and income such as when an employee applies for a loan, credit card, lease or government assistance.
Health Compliance. ADP helps businessesmanage crucial employer-related elements of the Affordable Care Act, including determining offer of coverage eligibility, assessing affordability, and providing a critical regulatory management solution.
Professional Employer Organization (PEO) Services'Services’ Products and Services
ADP TotalSource®, ADP'sTotalSource, ADP’s PEO business, offers small and midsizedmid-sized businesses a comprehensive human resourcesHR outsourcing solution through a co-employment model. In fiscal 2017, ADP TotalSource became one of the first PEOs 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 PEO, ADP TotalSource provides integrated human resourcescomplete HR management services while the client continues to
direct the day-to-day job-related duties of the employees. ADP TotalSource integratescombines key HR management and employee benefits functions, including HR administration, employee benefits, and employer liability management, into a single-source solution:
HR Administration.ADP TotalSource offers a variety of comprehensive integrated HR administration services, such as:
employee recruitment and selection
payroll and tax administration
time and attendance management
benefits administration
employee training and development
online HR management tools
employee leave administration
Employee Benefits. Through the co-employment model, ADP TotalSource provides eligible worksite employees with access to:
group health, dental and vision coverage
a 401(k) retirement savings plan
health savings accounts
flexible spending accounts
group term life and disability coverage
an employee assistance program
Employer Liability Management.ADP TotalSource helps clients manage and limit employment relatedemployment-related risks and related costs by providing:
a workers'workers’ compensation program
unemployment claims management
safety compliance guidance and access to safety training
access to employment practices liability insurance
guidance on compliance with U.S. federal, state and local employment laws and regulations
The scale of ADP TotalSource's scaleTotalSource allows us to deliver a variety of benefits and services with efficiency and value typically out of reach to small and midsizedmid-sized businesses. ADP TotalSource is the largest PEO in the United States based on the number of worksite employees. ADP TotalSource has 59 offices located in 29 states and serves approximately 7,800more than 10,700 clients and an aggregate of approximately 340,000more than 490,000 worksite employees in all 50 states.
MARKETS AND SALES
Dealer Services
Dealer Management Systems and Other Retail Solutions. Dealer Services' Dealer Management Systems (DMS) offer enterprise technology solutions that provide an integrated suite of features and services that enable our clients to manage their information systems and process workflows involved in running automotive retail operations. DMSEmployer Services’ HCM solutions are available as “on-site” applications installed at the retail location or as managed servicesoffered in more than 110 countries and territories. The most material markets for our HCM solutions in which clients access ADP's DMS solutions through a cloud-based IT environment managed by ADP. The DMS accounting modules help clients manage all standard accounting procedures, including general ledger, receivables and balance sheet maintenance. The DMS service and parts modules enable automation of client operations such as service and repair order processing, purchase orders and parts ordering. The DMS sales and finance and insurance (F&I) modules facilitate clients' ability to manage customer inquiries, develop, analyze, present, and consummate transactions with customers, manage and print the forms needed to consummate such transactions, and track funds. Dealer Services also offers a full range of additional solutions that address every department and functional area of the dealership, including customer relationship management (CRM) applications, vehicle inventory and lot management solutions, and telephone systems. These additional solutions are typically fully integrated with the DMS.
Digital Marketing Solutions. Dealer Services provides digital marketing solutions under the Cobalt® brand, which ADP acquired in 2010. Cobalt digital marketing/advertising solutions and services include dealership websites, sales leads, email marketing, search and display advertising, and social media marketing and management services. These solutions are sold both as retail network marketing programs in conjunction with the manufacturers of ten leading automotive brands, as well as directly to automobile dealerships and regional dealer associations. Dealer Services' digital marketing solutions allow dealerships and original equipment manufacturers to connect with customers and manage their brands.
Network Management Solutions. Dealer Services designs, establishes, and maintains communications network solutions for its dealership clients that allow interactive communications among multiple site dealerships and connect franchised dealers with their vehicle manufacturer franchisors. These networks are used for activities such as new vehicle ordering and status inquiry, warranty submission and validation, parts and vehicle location, dealership customer credit application submission and decision-making, vehicle repair estimation, and acquisition of vehicle registration and lien holder information. Dealer Services' network solutions also include integrated IP telephony systems, wired and wireless network access solutions, and security management applications.
Training Services. Dealer Services offers comprehensive training and business process consulting services for many of its business solutions via multiple delivery methods. Task-specific internet-based courses are fully automated and available 24 hours a day. Dealer Services also provides interactive instructor-led training via internet-based sessions or live classroom courses that are customized to meet our clients' specific needs.
MARKETS AND MARKETING METHODS
Employer Services offers its products and services in the United States, and other countries. In fiscal 2014, 79% of Employer Services' revenues were from the United States, 14% were from Europe, 4% were from Canada and 3% were from South America, Australia,Europe. In each market, we have both country-specific solutions and Asia. ADP GlobalView is available to the largest multinational clients in 41 different countriesmulti-country solutions, for employers of all sizes and ADP Streamline is available to clients with smallcomplexities. The major components of our HCM offerings throughout these geographies are payroll, HR outsourcing and midsized operations in 100 different countries.time and attendance management. In addition, Employer Services offers in-country payroll and human resources outsourcing solutions to both small and large clients in 33 countries. In Canada, we are a leading provider of payroll processing (including full departmental outsourcing) and human resource administration services. Within Europe, we have business operations supporting our in-country solutions in France, Germany, Italy, the Netherlands, Poland, Spain, Switzerland, and the United Kingdom. We also offer payroll outsourcing services as well as HCM solutions in South America (in Brazil, Chile, Argentina, and Peru), China, India, and Australia. We offer wage and tax collection and remittance services in the United States, Canada, the United Kingdom, the Netherlands, France, Australia, India, and France.China. PEO Services offers services exclusively in the United States.
Dealer Services primarily serves automobile dealerships, which in turn may be dependent on a relatively small number of automobile manufacturers, but also serves truck, powersports (i.e., motorcycle, marine, and RV) and heavy equipment dealers, auto repair shops, used car lots, state departments of motor vehicles, vehicle manufacturers, and vehicle distributors. Dealer Services has offerings in 100 countries across North America, Europe, Africa, the Middle East, and the Asia Pacific region.
We market our products and servicessolutions primarily through our direct sales force. Employer Services also markets its solutions through indirect sales channels, such as marketing relationships with banks and certified public accountants, among others. In addition, Dealer Services uses distributors to sell, implement and support its solutions in select emerging markets. None of ADP'sADP’s major business groups has a single homogenoushomogeneous client base or market. While concentrations of clients exist in specific industries, no one client, industry or industry group is material to ADP'sADP’s overall revenues. ADP enjoys a leadership position in each of its major service offerings and does not believe any major service or major business unit of ADP is subject to unique market risk.
COMPETITION
The industries in which ADP operates are highly competitive. ADP knows of no reliable statistics by which it can determine the number of its competitors, but it believes that it is one of the largest providers of businessHR outsourcing solutions in the world. Employer Services and PEO Services competecompetes with other independent business outsourcing companies, companies providing enterprise resource planningERP services, software companiesproviders of cloud-based HCM solutions and financial institutions. In addition, another competitive factor in the industries in which Employer Services and PEO Services operate iscompetes 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 use of third party software applications or a captivecompany’s in-house function, whereby a company installs and operates its own business processing systems. Dealer Services' competitors include full
Competition for business outsourcing solutions is primarily based on service DMS providers, such as The Reynolds & Reynolds Company (Dealer Services' largest DMS competitorand product quality, reputation, ease of use and accessibility of technology, breadth of services and products, and price. We believe that ADP is competitive in the United Stateseach of these areas and Canada), Dealertrack Technologies, Inc., and companies providing applications and services that competeour commitment to service excellence, together with Dealer Services' non-DMS applications and services, such as Auto Trader Group, Inc. and Dealer.com, Inc.our leading-edge technology, distinguishes us from our competitors.
INDUSTRY REGULATION
Our business is subject to a wide range of complex U.S. and foreign laws and regulations. In addition, many of our products and servicessolutions are designed to assist clients with their compliance with certain U.S. and foreign laws and regulations that apply to which they are subject.them. We have, developed and continue to enhance, compliance programs and policies to monitor and address the legal and regulatory requirements applicable to our products, services,operations and operations,client solutions, including dedicated compliance personnel and training programs.
As one of the world'sworld’s largest providers of businessHR outsourcing solutions, our systems contain a significant amount of both sensitive client data and data related to clients, employees of our clients.clients, vendors and our employees. We are, therefore, subject to compliance obligations under both federal, state and stateforeign privacy and data security-related laws, including with respect to some of our businesses such as our COBRA, flexible spending accountfederal, state and insurance services businesses, ADP AdvancedMD® and ADP TotalSource®, the Health Insurance Portability and Accountability Act of 1996. We are also subject to federal and stateforeign security breach notification laws with respect to both our own employee data and client employee data. Additionally, theThe changing nature of privacy laws in the United States, Europe and elsewhere, including the adoption by the European Union and elsewhere couldof the General Data Protection Regulation (the "GDPR"), will impact our processing of personal information of our employees and on behalf of our clients.
In addition, in the United States, the Health Insurance Portability and Accountability Act of 1996 applies to our insurance services businesses and ADP TotalSource.
As part of our payroll and payroll tax management services, we move client funds to taxing authorities and our clients'clients’ employees via electronic transfer, direct deposit, prepaid access and ADPCheck. Certain elements of our U.S. money transmission activities, including our electronic payment and prepaid access (payroll pay card) offerings, are subject to certain licensing requirements. In addition, our U.S. prepaid access offering is subject to the anti-money laundering and reporting provisions of The Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2000 (the “BSA”). Elements of our money transmission activities outside of the United States are subject to similar licensing and anti-money laundering and reporting laws and requirements in the countries in which we offerprovide such services. In addition, our U.S. prepaid access (payroll card) offering is subject to the anti-money laundering and reporting provisions of the Bank Secrecy Act. Our employee screening and selection services business offers background checking services that are subject to the Fair Credit Reporting Act. Our PEO business (ADP TotalSource)ADP TotalSource is subject to various state licensing requirements. In addition, becauserequirements and maintains certifications with the Internal Revenue Service. Because ADP TotalSource is a co-employer with respect to its clients'clients’ worksite employees, we may assumebe subject to certain obligations and responsibilities of an employer under federal and state tax, insurance and employment laws.
In 2016, the U.S. Department of Labor issued a rule which treats ADP Retirement Services as a “fiduciary” for purposes of the Employee Retirement Income Security Act and the Internal Revenue Code in connection with certain services it provides. As a result, we have formed a registered investment adviser under the Advisers Act that will provide certain investment management and advisory services under a heightened “fiduciary” standard and will be regulated as an investment adviser by the SEC.
In addition, many of our businesses offer products and servicessolutions that assist our clients in complying with certain U.S. and foreign laws and regulations that apply to which they are subject; although thethem. 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 Patient Protection and Affordable Care Act. Our COBRA administration services and flexible spending account services are designed to comply with relevant federal guidelines relating to, respectively, employers' benefits continuation obligations andAct in the requirements of Section 125 of the Internal Revenue Code.United States. Similarly, our Tax CreditsCredit Services business, which helps clients in the United States take advantage of tax credit opportunities as they hirein 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.
credits, which are subject to renewal, amendment or rescission.
The foregoing description does not include an exhaustive list of the laws and regulations governing andor impacting our business. See the discussion contained in the "Risk Factors"“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 may decreasecould have a materially adverse effect on our revenues and earnings.reputation, results of operations or financial condition or have other adverse consequences.
CLIENTS AND CLIENT CONTRACTS
ADP provides its services to approximately 637,000700,000 clients. In fiscal 2014,2017, no single client or group of affiliated clients accounted for revenues in excess of 2% of ADP’s annual consolidated revenues.
ADP is continuously in 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 couldcan 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 or a Dealer Services client with multiple deliverables (generally six to twelve months), and in. In some cases, the period may exceed two years for a large GlobalView client or other large, complicated implementation. Although we monitor sales that have not yet been billed or 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 relating to allocate resources needed to install services, and as a means of assessing our performance against the installation timing 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 ADP’s expected future revenue, is not a meaningful indicator of our future performance and is not used by management internally to estimate ADP’s 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 ADP. ADP'sADP’s client retention is estimated at approximately 1210 years in Employer Services, and approximately 7 years in PEO Services, and approximately 12 years in Dealer Services, and has not varied significantly from period to period.
PRODUCT DEVELOPMENT
9
ADP continually upgrades, enhances, and expands its 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 ADP's revenues. ADP believes that our strategic solutions and services have significant remaining life cycles.
SYSTEMS DEVELOPMENT AND PROGRAMMING
During the fiscal years ended June 30, 2014, 2013,2017, 2016, and 2012,2015, ADP invested approximately $834$859 million, $757$818 million, and $699$767 million, respectively, from continuing operations, in systems development and programming, migrationwhich includes expenses for activities such as client migrations to our new computing technologies andstrategic platforms, the development of new products and maintenance of our existing technologies, including purchases of new software and software licenses.
PRODUCT DEVELOPMENT
ADP continually upgrades, enhances, and expands its existing solutions and services. Generally, no new solution or service has a significant effect on ADP's revenues or negatively impacts its existing solutions and services, and ADP's solutions and services have significant remaining life cycles.
LICENSES
ADP is the licensee under a number of agreements for computer programs and databases. ADP'sADP’s business is not dependent upon a single license or group of licenses. Third-party licenses, patents, trademarks, and franchises are not material to ADP'sADP’s business as a whole.
NUMBER OF EMPLOYEES
ADP employed approximately 61,00058,000 persons as of June 30, 2014.2017.
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. 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'sManagement’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'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K. The level of
importance of each of the following risks may vary from time to time, and any of these risks may have a material effect on our business.
ChangesFailure to comply with, or changes in, laws and regulations may decreaseapplicable to our revenues and earningsbusinesses 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. Changesregulations, 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 could result in the suspension or revocation of licenses or registrations, the limitation, suspension or termination of services, and the imposition of consent orders or civil and criminal penalties, including fines, that could damage our reputation and have a materially adverse effect on our results of operation or financial condition.
In addition, changes in laws or governmental regulations, or changes in the interpretation of existing laws or regulations by a regulatory authority, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business. For example, a change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities would adversely impact average client balances and, thereby adversely impact interest income from investing client funds before such funds are remitted to the applicable taxing authorities or client employees.authorities. Changes in taxation requirements in the United States or in other countriesregulations could adversely affect our effective tax rate and our net income. Changes in laws that govern the co-employment arrangement between a professional employer organization and its worksite employees may require us to change the manner in which we conduct some aspects of our PEO business. Health care reform under the Affordable Care Act, as amended, related state laws, and the regulations adopted or to be adopted thereunder, as well as pending federal health care legislation, have the potential to substantially impact substantially the way that employers provide health insurance to employees and the health insurance market for our PEO business, as well as the small and midsized businesses that comprise ADP TotalSource's clients and prospects.demand for our health care compliance solutions. We are unable to determine the ultimate impact that health care reform, including the pending federal health care legislation, will have on our PEO business and our ability to attract and retain PEO clients. clients or demand for our health care compliance solutions.
Amendments to money transmitter statutes have required us to receiveobtain licenses in some jurisdictions, and thejurisdictions. The adoption of new money transmitter statutes in other jurisdictions, as well as changes in theregulators’ interpretation of existing state and federal money transmitter or money services business statutes in the futureor regulations, or disagreement by a regulatory authority with our interpretation of such existing statutes or regulations, could require additional registration or licensing, as well as possiblelimit certain of our business activities until they are appropriately licensed, and expose us to financial penalties. These occurrences could also require changes to the manner in which we conduct some aspects of our money movement business or our client funds investment strategy.strategy, which could adversely impact interest income from investing client funds before such funds are remitted.
Failure to comply with anti-corruption laws and regulations, anti-money laundering laws and regulations, economic and trade sanctions, and similar laws could have a materially adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences
Regulators worldwide are exercising heightened scrutiny with respect to anti-corruption, economic and trade sanctions, and anti-money laundering laws and regulations. Such heightened scrutiny has resulted in more aggressive investigations and enforcement of such laws and more burdensome regulations, any of which which could 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 (the “FCPA”) and the U.K. Bribery Act. Such laws generally prohibit improper payments or offers of payments to foreign government officials and leaders of political parties, and in some cases, to other persons, for the purpose of obtaining or retaining business. We are also subject to economic and trade sanctions programs, including those administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), which prohibit or restrict transactions or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially designated, including narcotics traffickers and terrorists or terrorist organizations, among others. In addition, some of our businesses in the U.S. and a number of countries in which we operate are subject to anti-money laundering laws and regulations, including, for example, The Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2000 (the “BSA”). Among other things, the BSA requires certain financial institutions, including banks and money services businesses (such as money transmitters and providers of prepaid access), to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records. We have registered our payroll card business with the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) as a provider of prepaid access pursuant to a FinCEN regulation.
We have implemented policies and procedures to monitor and address compliance with applicable anti-corruption, economic and trade sanctions and anti-money laundering laws and regulations, and we are continuously in the process of
reviewing, upgrading and enhancing certain of our policies and procedures. However, there can be no assurance that our employees, consultants or agents will not take actions in violation of our policies for which we may be ultimately responsible, or that our policies and procedures will be adequate or will be determined to be adequate by regulators. Any violations of applicable anti-corruption, economic and trade sanctions or anti-money laundering laws or regulations could limit certain of our business activities until they are satisfactorily remediated and could result in civil and criminal penalties, including fines, that could damage our reputation and have a materially adverse effect on our results of operation or financial condition. Further, bank regulators are imposing additional and stricter requirements on banks to ensure they are meeting their BSA obligations, and banks are increasingly viewing money services businesses, as a class, to be higher risk customers for money laundering. As a result, our banking partners may limit the scope of services they provide to us or may impose additional requirements on us. These regulatory restrictions on banks and changes to banks’ internal risk-based policies and procedures may result in a decrease in the number of banks that may do business with us, may require us to change the manner in which we conduct some aspects of our business, may decrease our revenues and earnings and could have a materially adverse effect on our results of operation or financial condition.
Failure to comply with data privacy 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, hosting, transfer, disclosure, use, storage and security of personal information required to provide our services is subject to federal, state and foreign data privacy laws. These laws, which are not uniform, do one or more of the following: regulate the collection, transfer (including in some cases, the transfer outside the country of collection), processing, storage, use and disclosure of personal information; require notice to individuals of privacy practices; give individuals certain access and correction rights with respect to their personal information; and prevent the use or disclosure of personal information for secondary purposes such as marketing. Under certain circumstances, some of these laws require us to provide notification to affected individuals, 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. In addition, the European Union adopted the comprehensive General Data Privacy Regulation (the “GDPR”) in May 2016 that will replace the current EU Data Protection Directive and related country-specific legislation. The GDPR will become fully effective in May 2018. Complying with the enhanced obligations imposed by the GDPR may result in significant costs to our business and require us to amend certain of our business practices. Further, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. The future enactment of more restrictive laws, rules or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant legal liability.
Our businesses collect, host, collect,transfer, disclose, use, store and storesecure personal information about our clients and employees of our clients,business information, 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 and cause losses
A number ofIn connection with our businessesbusiness, we collect, host, collect,transfer, disclose, use, store and storesecure large amounts of personal and business information about our clients, and employees of our clients, our vendors and our employees, contractors and temporary staff, including payroll information, healthcarehealth care information, personal and business financial data, social security numbers and their foreign equivalents, bank account numbers, tax information and other sensitive personal and business information. In addition, we collect and maintain personal information of our employees in the ordinary course of our business.
We are focused on ensuring our operating environmentsthat we safeguard and protect personal and business information, and although we believe that wedevote significant resources to maintain a robust program of information security and controlsregularly update our systems and none of the threats that we have encountered to date have materially impacted us, the impact of a breach could have a material adverse effect on our business, results of operations and financial condition.
We are also subject to various laws, rules and regulations relating to the collection, use and security of personal and business information. The future enactment of more restrictive laws, rules or regulations could have an adverse impact on us through increased costs or restrictions on our businesses. In addition, the possession and use of personal information and data in conducting our business subjects us to laws that may require notification to clients or employees of a privacy breach.
Globally,processes. Nonetheless, globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication.sophistication, and we are regularly targeted by unauthorized parties using malicious tactics, code and viruses. Although this is a global problem, it may affect our businesses more than other businesses because malevolent third parties may focus on the amount and type of personal and business information that our businesses collect, host, collect, use, transmit and store.
We have programs in place to prevent, detect and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, are increasingly more complex and sophisticated and may be difficult to detect for long periods of time, we may be unable or fail to anticipate these techniques or implement adequate or timely preventive or responsive measures. In addition, hardware, software or applications we develop or procure from third parties may contain defects in design or manufacture or other problems that could compromise the confidentiality, integrity or availability of data or our systems. Unauthorized parties may 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 employees, contractors, and temporary staff. As these threats continue to evolve and
increase, we may be required to invest significant additional resources to modify and enhance our information security and controls and to investigate and remediate any security vulnerabilities. In addition, while our operating environments are designed to safeguard and protect personal and business information, we do not have the ability to monitor the implementation or effectiveness of any safeguards by our clients or vendors, and, in any event, third parties may be able to circumvent those security measures.
Any cyber attack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service, corruption of data, or theft of non-public or other sensitive information, or similar act by a malevolent party, or inadvertent acts or inactions by our employees, contractors or temporary staff, could result in the disclosure or misuse of confidential personal or business information, and could have a materially adverse effect on our business operations, or that of our clients, create financial liability, regulatory sanction or a loss of confidence in our ability to serve clients, or cause current or potential clients to choose another service provider. As these threats continue to evolve,
Although we may be required to invest significant additional resources to modify and enhance ourbelieve that we maintain a robust program of information security and controls orand none of the data security incidents that we have encountered to investigatedate have materially impacted us, a data security incident could have a materially adverse effect on our business, results of operations and remediate any security vulnerabilities. In addition, while our operating environmentfinancial condition. While ADP maintains insurance coverage that, subject to policy terms and conditions and a significant self-insured retention, is designed to safeguard and protect personal and business information, we do not have the ability to
monitor the implementationaddress losses or claims that may arise in connection with certain aspects of similar safeguards by our clients, vendors or their respective employees, and, in any event, third partiescyber risks, such insurance coverage may be ableinsufficient to circumvent those security measures.cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.
Our systems may be subject to disruptions that could adversely affecthave a materially adverse effect on our business and reputation
Many of our businesses are highly dependent on our ability to process, on a daily basis, a large number of complicated transactions. We rely heavily on our payroll, financial, accounting, and other data processing systems. If any of these systems fails to operate properly or becomes disabled even for a brief period of time, we could suffer financial loss, a disruption of our businesses, liability to clients, loss of clients, regulatory intervention, or damage to our reputation.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 may not be successful in preventing or mitigating the loss of client data, service interruptions, disruptions to our operations, or damage to our important facilities.
A disruption of our data centers could have a materially adverse effect on our business
We host our applications and serve our clients from data centers that we operate and from data centers operated by third-party vendors. If any of our or our third party vendors' data centers fail or become disabled, even for a limited period of time, our businesses could be disrupted and we could suffer financial loss, liability to clients, loss of clients, regulatory intervention, or damage to our reputation, any of which could have a material adverse effect on our results of operation or financial condition. In addition, our third party vendors may cease providing data center facilities or services, elect to not renew their agreements with us on commercially reasonable terms or at all, breach their agreements with us or fail to satisfy our expectations, which could disrupt our operations and require us to incur costs which could materially adversely affect our results of operation or financial condition.
If we fail to adapt our technology and services to meet client needs and preferences, the demand for our solutions and services may diminish
Our businesses operate in industries that are subject to rapid technological advances and changing client needs and preferences. In order to remain competitive and responsive to client demands, we continually upgrade, enhance, and expand our existing solutions and services. If we fail to respond successfully to technology challenges and client needs and preferences, the demand for our solutions and services may diminish.
Political and economic factors may adversely affect our business and financial results
Trade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and volatility. When there is a slowdown in the economy, employment levels and interest rates may decrease with a corresponding impact on our businesses. Clients may react to worsening conditions by reducing their spending on payroll and other outsourcing services or renegotiating their contracts with us. In addition, a reduction in availability of financing during such conditions, even to borrowers with the highest credit ratings,us, which may limitadversely affect our access to short-term debt markets to meet liquidity needs required by our Employer Services business.business and financial results.
We invest our client funds in liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, our client fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated, individually or in unison, during periods of unusual financial market volatility. In addition, as part of our client funds investment strategy, we extend the maturities of our investment portfolio for client funds and utilize short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. In order to satisfy these short-term funding requirements, we maintain access to various sources of liquidity, including borrowings under our commercial paper program and our committed credit facilities, our ability to execute reverse repurchase transactions and corporate cash balances. A reduction in the availability of any such financing during periods of disruption in the financial markets or otherwise may require us to sell client fund assets to satisfy our short-term funding requirements, which may result in the recognition of losses and adversely impact our results of operations, financial condition and cash flow.
We are dependent upon various large banks to execute Automated Clearing Houseelectronic payments and wire transfers as part of our client payroll, tax and taxother money movement services. While we have contingency plans in place for bank failures, a systemic shutdown of the banking industry would impede our ability to process funds on behalf of our payroll, tax and taxother 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 consolidated results of operations, financial position orand cash flows.
Our business could be negatively impacted as a result of actions by activist stockholders or others
We may be subject to actions or proposals from activist stockholders or others that may not align with our business strategies or the interests of our other stockholders. Responding to such actions could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and senior management from the pursuit of our business strategies. Activist stockholders may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel, potential customers and business partners and may affect our relationships with current customers, vendors, investors and other third parties. In addition, actions of activist stockholders may cause periods of fluctuation in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Change in our credit ratings could adversely impact our operations and lower our profitability
The major credit rating agencies periodically evaluate our creditworthiness and have given us very strong, investment-grade long-term debt ratings and the highest commercial paper ratings. Failure to maintain high credit ratings on long-term and short-term debt could increase our cost of borrowing, reduce our ability to obtain intra-day borrowing required by our Employer Services business, and ultimately reduceadversely impact our client interest revenue.results of operations.
Our proposed spin-offIf the distribution of ourCDK Global® common stock to ADP’s stockholders does not qualify as a tax-free spinoff, we could incur substantial liabilities and may not be fully indemnified for such liabilities
On September 30, 2014, the Company completed the tax-free spinoff of its former Dealer Services business is subjectthrough the distribution of all of the issued and outstanding common stock of CDK Global, Inc. (“CDK Global”) to inherent risks
The proposed spin-off of ourADP’s stockholders. CDK Global was formed to hold ADP’s former Dealer Services business and, as a result of the distribution, became an independent public company trading under the symbol “CDK” on the NASDAQ Global Select Market. Prior to completing the spinoff of CDK Global, ADP received an opinion from Paul, Weiss, Rifkind, Wharton & Garrison LLP, its counsel, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the opinion, the distribution qualified as a transaction that is subjecttax-free under Section 355 and other related provisions of the Internal Revenue Code. ADP also received a private letter ruling from the IRS with respect to inherent riskscertain discrete and uncertainties including, among others: riskssignificant issues arising in connection with the transactions effected in connection with the separation and distribution. The opinion and the ruling were based upon various factual representations and assumptions, as well as certain undertakings made by ADP and CDK Global. If any of those factual representations or assumptions was untrue or incomplete in any material respect, any undertaking is not complied with, or the facts upon which the opinion and the ruling were based were materially different from the facts at the time of the distribution, the distribution may not qualify for tax-free treatment. Although a private letter ruling from the IRS generally is binding on the IRS, the IRS did not rule that the spin-off willdistribution satisfies every requirement for a tax-free distribution. Opinions of counsel are not binding on the IRS or the courts. As a result, the conclusions expressed in an opinion of counsel could be consummated; increased demands on our management teamchallenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to accomplishADP’s stockholders that received CDK Global common stock pursuant to the spin-off;distribution could be materially less favorable.
If the distribution were determined not to qualify as a tax-free transaction under Section 355 of the Code, each United States holder of ADP common stock that received CDK Global common stock pursuant to the distribution generally would be treated as receiving a distribution taxable as a dividend in an amount equal to the fair market value of the shares of CDK Global common stock received by such holder. In addition, ADP generally would recognize gain with respect to the distribution and certain related transactions, and CDK Global could be required to indemnify ADP for any resulting taxes and related expenses, which could be material. The distribution and certain related transactions could be taxable to ADP if CDK Global or its stockholders were to engage in certain transactions after the distribution. In such cases, ADP or its stockholders that received CDK Global common stock pursuant to the spinoff could incur significant transaction costsU.S. federal income tax liabilities, and risks from changes in the results of operations of our reportable segments.CDK Global could be required to indemnify ADP for any resulting taxes and related expenses, which could be material. CDK Global may be unable to indemnify us fully for any such taxes and related expenses.
We may be unable to attract and retain qualified personnel
Our ability to grow and provide our clients with competitive services is partially dependent on our ability to attract and retain highly motivated people with the skills to serve our clients. Competition for skilled employees in the outsourcing and other markets in which we operate is intense and, if we are unable to attract and retain highly skilled and motivated personnel, results of our operations may suffer.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
ADP owns 128 of its processing/print centers, and 2419 other operational offices, sales offices, and its corporate headquarters in Roseland, New Jersey, which aggregate approximately 3,705,3973,455,863 square feet. None of ADP's owned facilities is subject to any material encumbrances. ADP leases space for some of its processing centers, other operational offices, and sales offices. All of these leases, which aggregate approximately 6,062,3116,195,070 square feet in North America, Europe, South America, Asia, Australia and Africa,worldwide, expire at various times up to the year 2024.2028. ADP believes its facilities are currently adequate for their intended purposes and are adequately maintained.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 materialmaterially adverse impact on its financial condition, results of operations, or cash flows.
Item 4. Mine Safety Disclosures
Not applicable
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'sCompany’s common stock is the NASDAQ Global Select Market under the symbol ADP. The following table sets forth the reported high and low sales prices of the Company'sCompany’s common stock reported on the NASDAQ Global Select Market and the cash dividends per share of common stock declared during each quarter for the two most recent fiscal years. As of June 30, 2014,2017, there were 45,49741,598 holders of record of the Company'sCompany’s common stock. As of such date, 509,052587,103 additional holders held their common stock in “street name.”
| | | | Price Per Share | | Dividends | Price Per Share | | Dividends |
| | High | | Low | | Per Share | High | | Low | | Per Share |
| Fiscal 2014 quarter ended | | |
| Fiscal 2017 quarter ended | | |
| | June 30 | $80.37 | | $73.38 | | $0.480 | $105.68 | | $95.50 | | $0.570 |
| March 31 | $83.00 | | $71.91 | | $0.480 | $104.61 | | $93.07 | | $0.570 |
| December 31 | $83.82 | | $69.91 | | $0.480 | $102.73 | | $84.03 | | $0.570 |
| September 30 | $74.95 | | $68.75 | | $0.435 | $93.82 | | $84.75 | | $0.530 |
| | Fiscal 2013 quarter ended | | |
| Fiscal 2016 quarter ended | | |
| | June 30 | $72.00 | | $63.30 | | $0.435 | $91.87 | | $84.36 | | $0.530 |
| March 31 | $65.12 | | $57.75 | | $0.435 | $90.00 | | $76.65 | | $0.530 |
| December 31 | $59.96 | | $54.02 | | $0.435 | $90.67 | | $78.74 | | $0.530 |
| September 30 | $59.50 | | $54.85 | | $0.395 | $85.21 | | $64.29 | | $0.490 |
Issuer Purchases of Equity Securities
|
| | | | |
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of the Publicly Announced Common Stock Repurchase Plan (2) | Maximum Number of Shares that may yet be Purchased under the Common Stock Repurchase Plan (2) (3) |
April 1, 2014 to April 30, 2014 | 180 | $77.37 | — | 18,351,660 |
May 1, 2014 to May 31, 2014 | 1,402,889 | $78.19 | 1,400,000 | 16,951,660 |
June 1, 2014 to June 30, 2014 | 1,462,568 | $79.00 | 1,462,052 | 15,489,608 |
| Total | 2,865,637 | | 2,862,052 | |
|
| | | | |
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of the Publicly Announced Common Stock Repurchase Plan (2) | Maximum Number of Shares that may yet be Purchased under the Common Stock Repurchase Plan (2) |
April 1, 2017 to April 30, 2017 | 571,842 | $102.72 | 570,000 | 27,470,048 |
May 1, 2017 to May 31, 2017 | 1,200,846 | $99.10 | 1,200,000 | 26,270,048 |
June 1, 2017 to June 30, 2017 | 1,321,843 | $101.87 | 1,320,000 | 24,950,048 |
| Total | 3,094,531 | | 3,090,000 | |
|
| | |
| (1) | | Pursuant to the terms of the Company'sCompany’s restricted stock program, the Company purchased 3,5854,531 shares at the then market value of the shares in connection with the exercise by employees of their option under such program to satisfy certain tax withholding requirements through the delivery of shares to the Company instead of cash. |
| |
| (2) | | The Company received the Board of Directors' approval to repurchase shares of the Company's common stock as follows: |
|
| | |
| Date of Approval | | Shares |
March 2001 | | 50 million |
November 2002 | | 35 million |
November 2005 | | 50 million |
August 2006 | | 50 million |
August 2008 | | 50 million |
June 2011 | | 35 million |
| August 2014 | | 30 million |
| August 2015 | | 25 million |
There is no expiration date for the common stock repurchase plan.
|
| | |
(3) | | In August 2014, the Company received the Board of Directors' approval to repurchase an additional 30 million shares of the Company common stock. This additional authorization is not reflected in the table as it occurred subsequent to June 30, 2014. |
Performance Graph
The following graph compares the cumulative return on the Company'sCompany’s common stock(a) for the most recent five years with the cumulative return on the S&P 500 Index and athe Peer Group Index,(b) assuming an initial investment of $100 on June 30, 2009,2012, with all dividends reinvested. The stock price performance shown on this graph may not be indicative of future performance.
* The Peer Group Index is comprised of the following companies:
|
| | |
Insperity,(a) | On September 30, 2014, the Company completed the spinoff of its former Dealer Services business into an independent publicly traded company called CDK Global, Inc. The cumulative returns of the Company’s common stock have been adjusted to reflect the spinoff. |
| | Paychex, Inc. |
Computer Sciences Corporation(b) | | We use the S&P 500 Information Technology Index as our Peer Group Index. The Ultimate Software Group, Inc. |
Global Payments Inc. | | Total System Services, Inc. |
Intuit Inc. | | The Western UnionS&P 500 Information Technology Index is a broad index that includes the Company and several competitors. |
Item 6. Selected Financial Data
The following selected financial data is derived from our consolidated financial statementsConsolidated Financial Statements and should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk included in this Annual Report on Form 10-K. PriorThe Company uses certain non-GAAP financial measures that we believe better reflect the underlying operations of our business model, allows investors to assess our performance in a manner similar to the method used by management, and improves our ability to understand and assess our operating performance against prior periods. Refer to (A) below for additional information about our non-GAAP financial measures and our reconciliations to reported results. Additionally, prior period amounts have been adjusted to exclude discontinued operations.
| | | (Dollars and shares in millions, except per share amounts) | | | | | | | | | | | | | | | | | | | | |
| Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 12,206.5 |
| | $ | 11,287.6 |
| | $ | 10,595.4 |
| | $ | 9,813.9 |
| | $ | 8,863.8 |
| | $ | 12,379.8 |
| | $ | 11,667.8 |
| | $ | 10,938.5 |
| | $ | 10,226.4 |
| | $ | 9,442.0 |
|
| Total costs of revenues | | $ | 7,221.4 |
| | $ | 6,638.5 |
| | $ | 6,203.9 |
| | $ | 5,698.6 |
| | $ | 4,991.0 |
| | $ | 7,269.8 |
| | $ | 6,840.3 |
| | $ | 6,427.6 |
| | $ | 6,041.0 |
| | $ | 5,574.1 |
|
| Gross profit | | $ | 4,985.1 |
| | $ | 4,649.1 |
| | $ | 4,391.5 |
| | $ | 4,115.3 |
| | $ | 3,872.8 |
| |
| Earnings from continuing operations before income taxes | | $ | 2,274.6 |
| | $ | 2,076.1 |
| | $ | 2,101.7 |
| | $ | 1,912.1 |
| | $ | 1,850.2 |
| | $ | 2,531.1 |
| | $ | 2,234.7 |
| | $ | 2,070.7 |
| | $ | 1,879.2 |
| | $ | 1,710.1 |
|
| Adjusted earnings from continuing operations before income taxes (Note 1) | | $ | 2,289.5 |
| | $ | 2,118.8 |
| | $ | 2,035.7 |
| | $ | 1,912.1 |
| | $ | 1,850.2 |
| |
| Net earnings from continuing operations | | $ | 1,502.6 |
| | $ | 1,358.1 |
| | $ | 1,375.2 |
| | $ | 1,241.0 |
| | $ | 1,198.6 |
| | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
| | $ | 1,242.6 |
| | $ | 1,122.2 |
|
| Adjusted net earnings from continuing operations (Note 1) | | $ | 1,517.5 |
| | $ | 1,400.8 |
| | $ | 1,334.0 |
| | $ | 1,241.0 |
| | $ | 1,186.4 |
| |
| Adjusted earnings from continuing operations before interest and income taxes (A) | | | $ | 2,447.6 |
| | $ | 2,274.2 |
| | $ | 2,061.5 |
| | $ | 1,870.3 |
| | $ | 1,746.5 |
|
| Adjusted net earnings from continuing operations (A) | | | $ | 1,665.0 |
| | $ | 1,494.8 |
| | $ | 1,376.5 |
| | $ | 1,242.6 |
| | $ | 1,164.9 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Basic earnings per share from continuing operations | | $ | 3.14 |
| | $ | 2.81 |
| | $ | 2.82 |
| | $ | 2.51 |
| | $ | 2.39 |
| | $ | 3.87 |
| | $ | 3.27 |
| | $ | 2.91 |
| | $ | 2.59 |
| | $ | 2.32 |
|
| Diluted earnings per share from continuing operations | | $ | 3.11 |
| | $ | 2.79 |
| | $ | 2.79 |
| | $ | 2.49 |
| | $ | 2.38 |
| | $ | 3.85 |
| | $ | 3.25 |
| | $ | 2.89 |
| | $ | 2.57 |
| | $ | 2.30 |
|
| Adjusted diluted earnings per share from continuing operations (Note 1) | | $ | 3.14 |
| | $ | 2.88 |
| | $ | 2.71 |
| | $ | 2.49 |
| | $ | 2.36 |
| |
| Adjusted diluted earnings per share from continuing operations (A) | | | $ | 3.70 |
| | $ | 3.26 |
| | $ | 2.89 |
| | $ | 2.57 |
| | $ | 2.39 |
|
| Basic weighted average shares outstanding | | 478.9 |
| | 482.7 |
| | 487.3 |
| | 493.5 |
| | 500.5 |
| | 447.8 |
| | 457.0 |
| | 472.6 |
| | 478.9 |
| | 482.7 |
|
| Diluted weighted average shares outstanding | | 483.1 |
| | 487.1 |
| | 492.2 |
| | 498.3 |
| | 503.7 |
| | 450.3 |
| | 459.1 |
| | 475.8 |
| | 483.1 |
| | 487.1 |
|
| Cash dividends declared per share | | $ | 1.88 |
| | $ | 1.70 |
| | $ | 1.55 |
| | $ | 1.42 |
| | $ | 1.35 |
| | $ | 2.24 |
| | $ | 2.08 |
| | $ | 1.95 |
| | $ | 1.88 |
| | $ | 1.70 |
|
| Return on equity ("ROE") from continuing operations (Note 2) | | 23.4 | % | | 22.1 | % | | 22.7 | % | | 21.6 | % | | 22.2 | % | |
| | | | | | | | | | | | | | | | | | | | | |
| At year end: | | | | | | | | | | | | | | | | | | | | |
| Cash, cash equivalents and marketable securities | | $ | 4,069.9 |
| | $ | 2,041.1 |
| | $ | 1,665.4 |
| | $ | 1,523.7 |
| | $ | 1,775.5 |
| |
| Cash, cash equivalents and marketable securities of continuing operations | | | $ | 2,791.2 |
| | $ | 3,222.4 |
| | $ | 1,694.8 |
| | $ | 3,670.3 |
| | $ | 1,746.2 |
|
| Total assets of continuing operations | | $ | 32,051.7 |
| | $ | 32,251.4 |
| | $ | 30,673.6 |
| | $ | 34,088.4 |
| | $ | 26,709.5 |
| | $ | 37,180.0 |
| | $ | 43,670.0 |
| | $ | 33,110.5 |
| | $ | 29,629.6 |
| | $ | 30,041.7 |
|
| Total assets | | | $ | 37,180.0 |
| | $ | 43,670.0 |
| | $ | 33,110.5 |
| | $ | 32,059.8 |
| | $ | 32,268.1 |
|
| Obligations under reverse repurchase agreements | | $ | — |
| | $ | 245.9 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 245.9 |
|
| Obligation under commercial paper borrowings | | $ | 2,173.0 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
| Obligations under commercial paper borrowings | | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,173.0 |
| | $ | — |
|
| Long-term debt | | $ | 11.5 |
| | $ | 14.7 |
| | $ | 16.8 |
| | $ | 34.2 |
| | $ | 39.8 |
| | $ | 2,002.4 |
| | $ | 2,007.7 |
| | $ | 9.2 |
| | $ | 11.5 |
| | $ | 14.7 |
|
| Stockholders’ equity | | $ | 6,670.2 |
| | $ | 6,189.9 |
| | $ | 6,114.0 |
| | $ | 6,010.4 |
| | $ | 5,478.9 |
| | $ | 3,977.0 |
| | $ | 4,481.6 |
| | $ | 4,808.5 |
| | $ | 6,670.2 |
| | $ | 6,189.9 |
|
Note 1.(A) Non-GAAP Financial Measures
The following table reconcilesIn addition to our GAAP results, within our Selected Financial Data towe use the adjusted results that exclude incremental costs incurred duringand other non-GAAP metrics set forth in the fiscal year ended June 30, 2014 ("fiscal 2014") that are directly attributable to the planned separation of our Dealer Services business, a goodwill impairment charge related to our ADP AdvancedMD business for the fiscal year ended June 30, 2013 ("fiscal 2013"), a gain on the sale of assets related to rights and obligations to resell a third-party expense management platform for the fiscal year ended June 30, 2012 ("fiscal 2012"), and certain favorable tax items for the fiscal year ended June 30, 2010. We use certain adjusted results, among other measures,table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods.periods:
|
| | |
| Adjusted Financial Measure | U.S. GAAP Measures | Adjustments/Explanation |
| Adjusted EBIT | Net earnings from continuing operations | - Provision for income taxes - Gains/losses on non-operational transactions such as sales of businesses and assets - All other interest expense and income - Certain restructuring charges
See footnotes (a) and (b) |
| Adjusted net earnings from continuing operations | Net earnings from continuing operations | Pre-tax and tax impacts of:
- Gains/losses on non-operational transactions such as sales of businesses and assets - Certain restructuring charges
See footnotes (b), (c), and (d) |
| Adjusted provision for income taxes | Provision for income taxes | Tax impacts of:
- Gains/losses on non-operational transactions such as sales of businesses and assets - Certain restructuring charges
See footnotes (c) and (d) |
| Adjusted diluted earnings per share from continuing operations | Diluted earnings per share | EPS impacts of:
- Gains/losses on non-operational transactions such as sales of businesses and assets - Certain restructuring charges
See footnote (b)
|
| Adjusted effective tax rate | Effective tax rate | See footnote (e) |
| Constant Dollar Basis | U.S. GAAP P&L line items | See footnote (f) |
We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior period, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by usmanagement and improves ourtheir ability to understand and assess our operating performance. The nature of these exclusions are for specific items that are not fundamental to our underlying business operations. Since these adjusted earnings from continuing operations before income taxes, adjusted net earnings from continuing operations,financial measures and adjusted diluted earnings per share (“EPS”) from continuing operationsother non-GAAP metrics are not measures of performance calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),GAAP, they should not be considered in isolation from, or as a substitute for, earnings from continuing operations before income taxes, net earnings from continuing operations, and diluted EPS from continuing operations,or superior to their U.S. GAAP measures, and they may not be comparable to similarly titled measures employed byat other companies.
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | | | | | | | | | | |
| Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2011 | | 2010 |
| | | | | | | | | | | |
Earnings from continuing operations before income taxes | | $ | 2,274.6 |
| | $ | 2,076.1 |
| | $ | 2,101.7 |
| | $ | 1,912.1 |
| | $ | 1,850.2 |
|
| Adjustments: | | | | | | | | | | |
| Separation costs | | 14.9 |
| | — |
| | — |
| | — |
| | — |
|
| Goodwill impairment | | — |
| | 42.7 |
| | — |
| | — |
| | — |
|
| Gain on sale of assets | | — |
| | — |
| | (66.0 | ) | | — |
| | — |
|
| Adjusted earnings from continuing operations before income taxes | | $ | 2,289.5 |
| | $ | 2,118.8 |
| | $ | 2,035.7 |
| | $ | 1,912.1 |
| | $ | 1,850.2 |
|
| | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1,502.6 |
| | $ | 1,358.1 |
| | $ | 1,375.2 |
| | $ | 1,241.0 |
| | $ | 1,198.6 |
|
| Adjustments: | | | | | | | | | | |
| Separation costs | | 14.9 |
| | — |
| | — |
| | — |
| | — |
|
| Goodwill impairment | | — |
| | 42.7 |
| | — |
| | — |
| | — |
|
| Gain on sale of assets | | — |
| | — |
| | (41.2 | ) | | — |
| | — |
|
| Favorable tax items | | — |
| | — |
| | — |
| | — |
| | (12.2 | ) |
| Adjusted net earnings from continuing operations | | $ | 1,517.5 |
| | $ | 1,400.8 |
| | $ | 1,334.0 |
| | $ | 1,241.0 |
| | $ | 1,186.4 |
|
| | | | | | | | | | | |
| Diluted earnings per share from continuing operations | | $ | 3.11 |
| | $ | 2.79 |
| | $ | 2.79 |
| | $ | 2.49 |
| | $ | 2.38 |
|
| Adjustments: | | | | | | | | | | |
| Separation costs | | 0.03 |
| | — |
| | — |
| | — |
| | — |
|
| Goodwill impairment | | — |
| | 0.09 |
| | — |
| | — |
| | — |
|
| Gain on sale of assets | | — |
| | — |
| | (0.08 | ) | | — |
| | — |
|
| Favorable tax items | | — |
| | — |
| | — |
| | — |
| | (0.02 | ) |
| Adjusted diluted earnings per share from continuing operations | | $ | 3.14 |
| | $ | 2.88 |
| | $ | 2.71 |
| | $ | 2.49 |
| | $ | 2.36 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| (Dollars and shares in millions, except per share amounts) | | | | | | | | | | |
| Years ended June 30, | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
| | $ | 1,242.6 |
| | $ | 1,122.2 |
|
| Adjustments: | | | | | | | | | | |
| Provision for income taxes | | 797.7 |
| | 741.3 |
| | 694.2 |
| | 636.6 |
| | 587.9 |
|
| All other interest expense (a) | | 59.3 |
| | 47.9 |
| | 1.5 |
| | 1.6 |
| | 2.3 |
|
| All other interest income (a) | | (22.4 | ) | | (13.6 | ) | | (10.7 | ) | | (10.5 | ) | | (8.6 | ) |
| Gain on sale of businesses | | (205.4 | ) | | (29.1 | ) | | — |
| | — |
| | — |
|
| Gain on sale of building | | — |
| | (13.9 | ) | | — |
| | — |
| | — |
|
| Workforce Optimization Effort (b) | | (5.0 | ) | | 48.2 |
| | — |
| | — |
| | — |
|
| Service Alignment Initiative (b) | | 90.0 |
| | — |
| | — |
| | — |
| | — |
|
| Goodwill impairment charge | | — |
| | — |
| | — |
| | — |
| | 42.7 |
|
| Adjusted EBIT | | $ | 2,447.6 |
| | $ | 2,274.2 |
| | $ | 2,061.5 |
| | $ | 1,870.3 |
| | $ | 1,746.5 |
|
| | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
| | $ | 1,242.6 |
| | $ | 1,122.2 |
|
| Adjustments: | | | | | | | | | | |
| Gain on sale of businesses | | (205.4 | ) | | (29.1 | ) | | — |
| | — |
| | — |
|
| Gain on sale of building | | — |
| | (13.9 | ) | | — |
| | — |
| | — |
|
| Workforce Optimization Effort (b) | | (5.0 | ) | | 48.2 |
| | — |
| | — |
| | — |
|
| Service Alignment Initiative (b) | | 90.0 |
| | — |
| | — |
| | — |
| | — |
|
| Goodwill impairment charge (g) | | — |
| | — |
| | — |
| | — |
| | 42.7 |
|
| Provision for income taxes on gain on sale of business (c) | | 84.0 |
| | 7.3 |
| | — |
| | — |
| | — |
|
| Provision for income taxes on gain on sale of building (d) | | — |
| | 5.3 |
| | — |
| | — |
| | — |
|
| Benefit/(Provision) for income taxes for Workforce Optimization Effort (d) | | 1.8 |
| | (16.4 | ) | | — |
| | — |
| | — |
|
| Income tax benefit for Service Alignment Initiative (d) | | (33.8 | ) | | — |
| | — |
| | — |
| | — |
|
| Adjusted net earnings from continuing operations | | $ | 1,665.0 |
| | $ | 1,494.8 |
| | $ | 1,376.5 |
| | $ | 1,242.6 |
| | $ | 1,164.9 |
|
| | | | | | | | | | | |
| Diluted earnings per share from continuing operations | | $ | 3.85 |
| | $ | 3.25 |
| | $ | 2.89 |
| | $ | 2.57 |
| | $ | 2.30 |
|
| Adjustments: | | | | | | | | | | |
| Gain on sale of businesses | | (0.27 | ) | | (0.05 | ) | | — |
| | — |
| | — |
|
| Gain on sale of building | | — |
| | (0.02 | ) | | — |
| | — |
| | — |
|
| Workforce Optimization Effort (b) | | (0.01 | ) | | 0.07 |
| | — |
| | — |
| | — |
|
| Service Alignment Initiative (b) | | 0.12 |
| | — |
| | — |
| | — |
| | — |
|
| Goodwill impairment charge | | — |
| | — |
| | — |
| | — |
| | 0.09 |
|
| Adjusted diluted earnings per share from continuing operations | | $ | 3.70 |
| | $ | 3.26 |
| | $ | 2.89 |
| | $ | 2.57 |
| | $ | 2.39 |
|
Note 2. Return(a) We continue to include the interest income earned on equity from continuinginvestments 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 hasof our business model. The adjustments in the table above represent the interest income and interest expense that is not related to our client funds extended investment strategy and are labeled as "All other interest expense" and "All other interest income."
(b) The majority of charges relating to our Service Alignment Initiative and Workforce Optimization Effort represent severance charges. Severance charges have been taken in the past and not included as an adjustment to get to adjusted results. Unlike severance charges in prior periods, these specific charges relate to our broad-based, company-wide Service Alignment Initiative and Workforce Optimization Effort. The fiscal 2017 Workforce Optimization Effort adjustment totaling approximately $5 million represents a reversal of the fiscal 2016 estimate.
(c) The taxes on the gains on the sale of the businesses were calculated based on the annualized marginal rate in effect during the quarter of the adjustment. The tax amount was adjusted for a book vs. tax basis difference for the year ended June 30, 2017 due to the derecognition of goodwill upon the sale of the business and for the year ended June 30, 2016 due to a previously recorded non tax-deductible goodwill impairment charge.
(d) The tax benefit/provision on the Service Alignment Initiative, Workforce Optimization Effort, and the gain on the sale of the building was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.
(e) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by our Adjusted net earnings from continuing operations divided by average total stockholders' equity. Our ROEplus our Adjusted provision for fiscal 2014 includes incremental costs incurredincome taxes.
(f) "Constant dollar basis" provides information that are directly attributable toisolates the planned separationactual growth of our Dealer Services business which decreased ROEoperations. "Constant dollar basis" is determined by 0.2%. Our ROE for fiscal 2013 includescalculating the impact of acurrent year result using foreign exchange rates consistent with the prior year.
(g) The goodwill impairment charge which decreased ROE by 0.6%. Our ROE forin fiscal 2012 includes the impact from the sale of assets related to rights and obligations to resell a third-party expense management platform which increased ROE by 0.6%. Our ROE for fiscal 2010 includes the impact from favorable tax items which increased ROE by 0.2%.2013 was non tax-deductible.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This reportdocument and other written or oral statements made from time to time by Automatic Data Processing, Inc. (“ADP”)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'smanagement’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 servicesproducts and products;services; compliance with existing or new legislation or regulations; changes in, laws regulating payroll taxes, professional employer organizations and employee benefits;or interpretations of, existing legislation or regulations; overall market, political and economic conditions, including interest rate and foreign currency trends; competitive conditions; auto salesour ability to maintain our current credit ratings and related industry changes;the impact on our funding costs and profitability; security or privacy breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; changes in technology; availability of skilled technical associates; and the impact of new acquisitions and divestitures. In addition, the proposed spin-off of the Dealer Services business is subject to inherent risks and uncertainties, including: risks that the spin-off will not be consummated; increased demands on our management team to accomplish the spin-off; significant transaction costs and risks from changes in results of operations of our reportable segments. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as required by law. These risks and uncertainties, along with the risk factors discussed under "Item“Item 1A. Risk Factors,"” and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.
EXECUTIVE OVERVIEW
On April 10, 2014, we announced that our Board of Directors approved a plan to separate our Dealer Services business into an independent publicly traded company through a tax-free spin-off of 100% of Dealer Services to ADP shareholders. We expect to receive at least $700 million in connection with the spin-off, which we plan to return to our shareholders after the spin-off through share repurchases, depending upon market conditions. Following the spin-off, we intend to increase the dividend annually, subject to Board of Director approval, keeping intact our 39-year track record of consecutive dividend increases. However, we expect to grow the dividend at a slower rate than earnings to allow us to return to our pre-separation target dividend payout ratio of 55% to 60% in about two years. We believe that the separationare one of the Dealer Serviceslargest providers of cloud-based Human Capital Management ("HCM") solutions - including payroll, talent management, Human Resources and benefits administration, and time and attendance management - to employers around the world. As a leader in this industry, we are focused on driving product innovation, enhancing our distribution and service capabilities, and assisting our clients with their HCM needs in the face of ever increasing regulatory complexity.
Highlights from the year ended June 30, 2017 ("fiscal 2017") include:
Worldwide new business will allow both companiesbookings declined 5% from the year ended June 30, 2016 ("fiscal 2016") to $1.65 billion for fiscal 2017.
Revenue grew 6% which includes one percentage point of combined pressure from the sale of our COBRA and CHSA businesses and foreign currency translation.
Pre-tax margin increased approximately 130 basis points to 20.4%; Adjusted EBIT margin increased 30 basis points to 19.8%.
Net earnings from continuing operations increased 16%; Adjusted net earnings from continuing operations grew 11%.
Diluted earnings per share from continuing operations increased 18% to $3.85. Adjusted diluted earnings per share from continuing operations increased 13% to $3.70.
| |
| • | We continued our shareholder friendly actions by returning $1.3 billion via share repurchases, and approximately $1 billion via dividends, which increased on a per-share basis for the 42nd consecutive year. We have fully distributed the proceeds from our fiscal 2016 debt issuance. |
During fiscal 2017, we continued to focus on their respective businesses, industries,our global HCM strategy by investing to strengthen our underlying business model and strategic opportunitiesprospects for sustainable long-term growth. Our robust and we will further direct our attention and resources to our mission and three strategic pillars discussed below. We expect to completediverse product offerings are the separation by October 2014.
ADP's mission is to help organizations unlock their business potential with our insightful solutions. We seek to embrace new technology and innovation to deliver market leading products and services that meet the needsresult of our clients across all of our markets. Our commitment to service excellence lies at the core of our relationship with each of our clients, whether a small, midsized or large organizationcontinued investment in one or multiple countries. Our business strategy is based on strategic pillars, which are predicated on our ability to driveproduct innovation and service excellence, and attract, build, and retain the right talent to position ADP as the global market leader in human capital management (HCM) services. Our strategic pillars are to:
grow our integrated suite of cloud-based HCM, benefits, and payroll solutions to serve the U.S. market;
invest to grow and scale our HR Business Process Outsourcing solutions by leveraging our platforms and processes; and
leverage our global presence to offer clients HCM, benefits, and payroll solutions where they do business.
service. Our results duringin fiscal 2014 continue to2017 reflect the strengthstability of our underlying business model includingand our disciplined strategy for profitable growth while maintaining our focus on shareholder friendly actions.
Our new business bookings were down 5% during fiscal 2017, as compared to fiscal 2016, due to high demand in fiscal 2016 for our solutions that assist our clients in complying with the diversityAffordable Care Act ("ACA"). We remain optimistic of our ability to deliver innovative and competitive products, as well as our sales force's ability to distribute our products heading into the year ending June 30, 2018 ("fiscal 2018").
The causes of our client baselosses and products.resulting impact on our revenue retention continue to be a point of internal focus. Our Employer Services revenue retention was down 50 basis points during fiscal 2017 as compared to fiscal 2016 primarily due to lower retention on our legacy client platforms coupled with the anticipated loss of a large client within our former CHSA business at the beginning of the fiscal year. We are seeing strong retention on our strategic platforms. We continue to upgrade our clients from legacy platforms to our new cloud-based solutions and focus on product innovation and improvements in salesforce productivity led to growth in new business bookings.improving the client experience. We are pleased with the performancebelieve upgrading our clients from legacy platforms is an important aspect of our business segments, which have continuedlong-term strategy, giving our clients our most innovative and seamless products.
Our implementation team's ability to drive goodimplement our services as well as our sales force's ability to sell to clients and prospects drove revenue growth and pretax margin expansion. Revenue retention improved across our business segments and we continue to benefitduring fiscal 2017. Our revenue growth also benefited from the strength ofcontinued increase in our pays per control metric, which representswe measure as the number of employees on our clients' payrolls as measured on a same-store-sales basis utilizing a representative subset of payrolls ranging from small to large businesses that are reflective of a broad range of U.S. geographic regions.
During fiscal 2014,2017, we were impacted by the declineincurred $90.0 million in high-margincharges for a previously announced multi-year Service Alignment Initiative intended to align our client interest revenues as a resultservice operations to our strategic platforms. In connection with this Service Alignment Initiative, we anticipate incurring total pre-tax charges of lower interest rates, partially offset by an increase in our average client funds balance. We expect this high-margin client interest revenue to increaseabout $30 million in the fiscal year ending June 30, 2015, but at a slower rate than our underlying processing revenue.
Consolidated revenues in fiscal 2014 increased8%, to $12,206.5 million, as compared to fiscal 2013. Earnings from continuing operations before income taxes increased10%, to $2,274.6 million, as compared to fiscal 2013 and net earnings from continuing operations increased11%, to $1,502.6 million, as compared to fiscal 2013. Our diluted earnings per share from continuing operations increased 11% to $3.11 in fiscal 2014, as compared to $2.79 in fiscal 2013.
Our fiscal 2014 results include $14.9 million of incremental costs directly attributable to our planned separation of our Dealer Service business and our fiscal 2013 results include a $42.7 million non tax-deductible goodwill impairment charge related to our ADP AdvancedMD business. Excluding these items, our earnings from continuing operations before income taxes increased 8%, to $2,289.5 million, as compared to $2,118.8 million for fiscal 2013, and net earnings from continuing operations increased 8%, to $1,517.5 million, compared to $1,400.8 million for fiscal 2013. Our adjusted diluted earnings per share from continuing operations increased 9%, to $3.14 for fiscal 2014 from $2.88, as adjusted, for fiscal 2013, due to increased adjusted net earnings from continuing operations and fewer shares outstanding.
Our business segment results were solid with Employer Services' revenues increasing 8% to $8,535.2 million and earnings from continuing operations before income taxes increasing 14% to $2,517.8 million, PEO Services' revenues increasing 15% to $2,270.9 million and earnings from continuing operations before income taxes increasing 17% to $234.3 million, and Dealer Services' revenues increasing 7% to $1,951.4 million and earnings from continuing operations before income taxes increasing 14% to $428.1 million in fiscal 2014. Employer Services' and PEO Services' new business bookings, which represent annualized recurring revenues anticipated from sales orders to new and existing clients, grew 7% worldwide, to over $1.4 billion in fiscal 2014. Dealer Services' new business bookings showed strength as we continued to experience the effects of a stronger automotive industry and increased penetration of applications within our base. Our key business metrics continue to reflect the core strength of our business model, with our Employer Services' worldwide client revenue retention rate increasing to an all-time high of 91.4% and our pays per control metric increased 2.8% for the twelve months ended June 30, 2014 from the twelve months ended June 30, 2013.2018.
InterestIn November 2016, we completed the sale of our Consumer Health Spending Account ("CHSA") and Consolidated Omnibus Reconciliation Act ("COBRA") businesses which resulted in a pre-tax gain of approximately $205 million. This disposition, and subsequent partnership with the acquiring company, allows us to further sharpen our focus on funds held forour core capabilities while continuing to deliver a full suite of HCM solutions to current and future clients decreased approximately 11%, or $47.2 million, to $373.7 million from $420.9 millionin fiscal 2013.a seamless fashion. The decreasehistorical results of operations of this business are included in the consolidated interest on funds held for clients resulted from the decreaseEmployer Services segment.
In January 2017, we acquired The Marcus Buckingham Company ("TMBC"). TMBC is a provider of talent management technology, coaching, and consulting solutions. The acquisition reflects our commitment to innovation and enhances our core HCM capabilities, allowing us to deepen our offering in this critical area of talent management. The results of operations of this business will be included in the average interest rate earned to 1.8% in fiscal 2014, as compared to 2.2% in fiscal 2013, partially offset by growth in average client funds balance of 8% resulting from the continued strength and growth of our Employer Services segment.
We invest our funds held for clients in accordance with ADP's prudent and conservative investment guidelines, where the safety of principal, liquidity, and diversification are the foremost objectives of our investment strategy. The portfolio is predominantly invested in AAA/AA rated fixed-income securities. 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.
Our financial condition and balance sheet remain solid at June 30, 2014, with cash and cash equivalents and marketable securities of $4.1 billion, of which $2.2 billion related to outstanding commercial paper borrowings. These borrowings were a normal part of our client funds extended investment strategy. Our net cash flows provided by operating activities were $1,821.4 million in fiscal 2014, as compared to $1,577.2 million in fiscal 2013. This increase in cash flows provided by operating activities from fiscal 2013 to fiscal 2014 was due to higher net earnings in fiscal 2014, favorable changes in timing differences on the net components of working capital, and lower pension contributions. The increase in cash provided by investing activities of $2,391.7 million is due to the timing of receipts and disbursements of restricted cash and cash equivalents held to satisfy client funds obligations, partially offset by the timing of purchases and sales of corporate and client fund marketable securities. The increase in cash used in financing activities of $2,509.2 million is primarily due to the timing of cash received from items such as proceeds from reverse repurchase agreements, proceeds from the issuance of commercial paper, and payments made related to client funds as compared to the prior year.
We have a strong business model with a high percentage of recurring revenues, excellentgood margins, the ability to generate consistent healthy cash flows, strong client retention, and low capital expenditure requirements. Our financial condition and balance sheet remain solid at June 30, 2017, with cash and cash equivalents and marketable securities of approximately $2.8 billion.
We continue to enhance valuemake investments in our sales force and are pleased with the operational improvements of our organization, our ability to continuously innovate and offer new and exciting products to our shareholders,clients, and the ability of our service organization to support these new services and strategic platforms. Our pipeline for future new business bookings remains strong, as we leverage our investments in fiscal 2014 returned excess cash of $883.1 million through dividendsour strategic platforms and $667.3 million through our share buyback program. Instrong, tenured sales force. We believe that our focus on these areas will continue to drive our growth and success in the last five fiscal years, we have reduced the Company's common stock outstanding by approximately 4% through share buybacks, net of the effect of common stock issued under employee stock-based compensation programs. We have also raised the dividend payout per share for 39 consecutive years.future.
RESULTS OF OPERATIONS
ANALYSIS OF CONSOLIDATED OPERATIONS
Prior period amounts have been adjusted to exclude discontinued operations.operations (refer to Note 3 of our Consolidated Financial Statements for additional information).
(Dollars inIn millions, except per share amounts)
| | | | Years ended June 30, | | $ Change | | % Change | | Years Ended | | % Change |
| | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 | | June 30, | | As Reported | | Constant Dollar Basis |
| | | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
| Total revenues | $ | 12,206.5 |
| | $ | 11,287.6 |
| | $ | 10,595.4 |
| | $ | 918.9 |
| | $ | 692.2 |
| | 8 | % | | 7 | % | |
| | | | | | | | | | | | | | | | |
| Total revenues from continuing operations | | | $ | 12,379.8 |
| | $ | 11,667.8 |
| | $ | 10,938.5 |
| | 6 | % | | 7 | % | | 6 | % | | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Costs of revenues: | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | | | |
| Operating expenses | 6,248.6 |
| | 5,731.5 |
| | 5,355.2 |
| | 517.1 |
| | 376.3 |
| | 9 | % | | 7 | % | | 6,416.1 |
| | 6,025.0 |
| | 5,625.3 |
| | 6 | % | | 7 | % | | 7 | % | | 9 | % |
Systems development and programming costs | 718.0 |
| | 654.3 |
| | 592.7 |
| | 63.7 |
| | 61.6 |
| | 10 | % | | 10 | % | | 627.5 |
| | 603.7 |
| | 595.4 |
| | 4 | % | | 1 | % | | 4 | % | | 4 | % |
| Depreciation and amortization | 254.8 |
| | 252.7 |
| | 256.0 |
| | 2.1 |
| | (3.3 | ) | | 1 | % | | (1 | )% | | 226.2 |
| | 211.6 |
| | 206.9 |
| | 7 | % | | 2 | % | | 7 | % | | 5 | % |
| Total costs of revenues | 7,221.4 |
| | 6,638.5 |
| | 6,203.9 |
| | 582.9 |
| | 434.6 |
| | 9 | % | | 7 | % | | 7,269.8 |
| | 6,840.3 |
| | 6,427.6 |
| | 6 | % | | 6 | % | | 7 | % | | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative costs | 2,762.4 |
| | 2,617.4 |
| | 2,452.9 |
| | 145.0 |
| | 164.5 |
| | 6 | % | | 7 | % | | 2,783.2 |
| | 2,637.0 |
| | 2,496.9 |
| | 6 | % | | 6 | % | | 6 | % | | 7 | % |
| Separation costs | 14.9 |
| | — |
| | — |
| | 14.9 |
| | — |
| | 100 | % | | — | % | |
| Goodwill impairment | — |
| | 42.7 |
| | — |
| | (42.7 | ) | | 42.7 |
| | (100 | )% | | 100 | % | |
| Interest expense | 6.1 |
| | 9.1 |
| | 7.7 |
| | (3.0 | ) | | 1.4 |
| | (33 | )% | | 18 | % | | 80.0 |
| | 56.2 |
| | 6.5 |
| | n/m |
| | n/m |
| | n/m |
| | n/m |
|
| Total expenses | 10,004.8 |
| | 9,307.7 |
| | 8,664.5 |
| | 697.1 |
| | 643.2 |
| | 7 | % | | 7 | % | | 10,133.0 |
| | 9,533.5 |
| | 8,931.0 |
| | 6 | % | | 7 | % | | 7 | % | | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income, net | (72.9 | ) | | (96.2 | ) | | (170.8 | ) | | (23.3 | ) | | (74.6 | ) | | (24 | )% | | 44 | % | | (284.3 | ) | | (100.4 | ) | | (63.2 | ) | | n/m |
| | n/m |
| | n/m |
| | n/m |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | $ | 2,274.6 |
| | $ | 2,076.1 |
| | $ | 2,101.7 |
| | $ | 198.5 |
| | $ | (25.6 | ) | | 10 | % | | (1 | )% | | $ | 2,531.1 |
| | $ | 2,234.7 |
| | $ | 2,070.7 |
| | 13 | % | | 8 | % | | 13 | % | | 9 | % |
| Margin | 18.6 | % | | 18.4 | % | | 19.8 | % | | |
| | |
| | | | | | 20.4 | % | | 19.2 | % | | 18.9 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for income taxes | $ | 772.0 |
| | $ | 718.0 |
| | $ | 726.5 |
| | $ | 54.0 |
| | $ | (8.5 | ) | | 8 | % | | (1 | )% | | $ | 797.7 |
| | $ | 741.3 |
| | $ | 694.2 |
| | 8 | % | | 7 | % | | 7 | % | | 8 | % |
| Effective tax rate | 33.9 | % | | 34.6 | % | | 34.6 | % | | |
| | |
| | |
| | |
| | 31.5 | % | | 33.2 | % | | 33.5 | % | | |
| | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings from continuing operations | $ | 1,502.6 |
| | $ | 1,358.1 |
| | $ | 1,375.2 |
| | $ | 144.5 |
| | $ | (17.1 | ) | | 11 | % | | (1 | )% | | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
| | 16 | % | | 8 | % | | 16 | % | | 10 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share from continuing operations | $ | 3.11 |
| | $ | 2.79 |
| | $ | 2.79 |
| | $ | 0.32 |
| | $ | — |
| | 11 | % | | — | % | |
| Diluted earnings per share ("EPS") from continuing operations | | | $ | 3.85 |
| | $ | 3.25 |
| | $ | 2.89 |
| | 18 | % | | 12 | % | | 18 | % | | 13 | % |
n/m - not meaningful
Note 1. Non-GAAP measures
In addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods:
|
| | |
| Adjusted Financial Measure | U.S. GAAP Measures | Adjustments/Explanation |
| Adjusted EBIT | Net earnings from continuing operations | - Provision for income taxes
- Gains/losses on non-operational transactions such as sales of businesses and assets
- All other interest expense and income
- Certain restructuring charges
See footnotes (a) and (b) |
| Adjusted net earnings from continuing operations | Net earnings from continuing operations | Pre-tax and tax impacts of:
- Gains/losses on non-operational transactions such as sales of businesses and assets
- Certain restructuring charges
See footnotes (b), (c), and (d) |
| Adjusted provision for income taxes | Provision for income taxes | Tax impacts of:
- Gains/losses on non-operational transactions such as sales of businesses and assets
- Certain restructuring charges
See footnotes (c) and (d) |
| Adjusted diluted earnings per share from continuing operations | Diluted earnings per share | EPS impacts of:
- Gains/losses on non-operational transactions such as sales of businesses and assets
- Certain restructuring charges
See footnote (b)
|
| Adjusted effective tax rate | Effective tax rate | See footnote (e) |
| Constant Dollar Basis | U.S. GAAP P&L line items | See footnote (f) |
We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior period, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance. The followingnature of these exclusions are for specific items that are not fundamental to our underlying business operations. Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended | | % Change |
| | | June 30, | | As Reported | | Constant Dollar Basis (f) |
| | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
| Net earnings from continuing operations | | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
| | 16 | % | | 8 | % | | 16 | % | | 10 | % |
| Adjustments: | | | | | | | | | | | | | | |
| Provision for income taxes | | 797.7 |
| | 741.3 |
| | 694.2 |
| | | | | | | | |
| All other interest expense (a) | | 59.3 |
| | 47.9 |
| | 1.5 |
| | | | | | | | |
| All other interest income (a) | | (22.4 | ) | | (13.6 | ) | | (10.7 | ) | | | | | | | | |
| Gain on sale of businesses | | (205.4 | ) | | (29.1 | ) | | — |
| | | | | | | | |
| Gain on sale of building | | — |
| | (13.9 | ) | | — |
| | | | | | | | |
| Workforce Optimization Effort (b) | | (5.0 | ) | | 48.2 |
| | — |
| | | | | | | | |
| Service Alignment Initiative (b) | | 90.0 |
| | — |
| | — |
| | | | | | | | |
| Adjusted EBIT | | $ | 2,447.6 |
| | $ | 2,274.2 |
| | $ | 2,061.5 |
| | 8 | % | | 10 | % | | 7 | % | | 11 | % |
| Adjusted EBIT Margin | | 19.8 | % | | 19.5 | % | | 18.8 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
| Provision for income taxes | | $ | 797.7 |
| | $ | 741.3 |
| | $ | 694.2 |
| | 8 | % | | 7 | % | | 7 | % | | 8 | % |
| Adjustments: | | | | | | | | | | | | | | |
| Gain on sale of businesses (c) | | (84.0 | ) | | (7.3 | ) | | — |
| | | | | | | | |
| Gain on sale of building (d) | | — |
| | (5.3 | ) | | — |
| | | | | | | | |
| Workforce Optimization Effort (d) | | (1.8 | ) | | 16.4 |
| | — |
| | | | | | | | |
| Service Alignment Initiative (d) | | 33.8 |
| | — |
| | — |
| | | | | | | | |
| Adjusted provision for income taxes | | $ | 745.7 |
| | $ | 745.1 |
| | $ | 694.2 |
| | — | % | | 7 | % | | — | % | | 8 | % |
| Adjusted effective tax rate (e) | | 30.9 | % | | 33.3 | % | | 33.5 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
| | 16 | % | | 8 | % | | 16 | % | | 10 | % |
| Adjustments: | | | | | | | | | | | | | | |
| Gain on sale of businesses | | (205.4 | ) | | (29.1 | ) | | — |
| | | | | | | | |
| Gain on sale of building | | — |
| | (13.9 | ) | | — |
| | | | | | | | |
| Workforce Optimization Effort (b) | | (5.0 | ) | | 48.2 |
| | — |
| | | | | | | | |
| Service Alignment Initiative (b) | | 90.0 |
| | — |
| | — |
| | | | | | | | |
| Provision for income taxes on gain on sale of business (c) | | 84.0 |
| | 7.3 |
| | — |
| | | | | | | | |
| Provision for income taxes on gain on sale of building (d) | | — |
| | 5.3 |
| | — |
| | | | | | | | |
| Benefit/(Provision) for income taxes for Workforce Optimization Effort (d) | | 1.8 |
| | (16.4 | ) | | — |
| | | | | | | | |
| Income tax benefit for Service Alignment Initiative (d) | | (33.8 | ) | | — |
| | — |
| | | | | | | | |
| Adjusted net earnings from continuing operations | | $ | 1,665.0 |
| | $ | 1,494.8 |
| | $ | 1,376.5 |
| | 11 | % | | 9 | % | | 11 | % | | 10 | % |
| | | | | | | | | | | | | | | |
| Diluted earnings per share from continuing operations | | $ | 3.85 |
| | $ | 3.25 |
| | $ | 2.89 |
| | 18 | % | | 12 | % | | 18 | % | | 13 | % |
| Adjustments: | | | | | | | | | | | | | | |
| Gain on sale of businesses | | (0.27 | ) | | (0.05 | ) | | — |
| | | | | | | | |
| Gain on sale of building | | — |
| | (0.02 | ) | | — |
| | | | | | | | |
| Workforce Optimization Effort (b) | | (0.01 | ) | | 0.07 |
| | — |
| | | | | | | | |
| Service Alignment Initiative (b) | | 0.12 |
| | — |
| | — |
| | | | | | | | |
| Adjusted diluted earnings per share from continuing operations | | $ | 3.70 |
| | $ | 3.26 |
| | $ | 2.89 |
| | 13 | % | | 13 | % | | 13 | % | | 14 | % |
(a) We continue to 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 reconcilesabove represent the interest income and interest expense that is not related to our resultsclient funds extended investment strategy and are labeled as "All other interest expense" and "All other interest income."
(b) The majority of charges relating to our Service Alignment Initiative and Workforce Optimization Effort represent severance charges. Severance charges have been taken in the past and not included as an adjustment to get to adjusted results that exclude incremental costs incurredresults. Unlike
severance charges in fiscal 2014 directly attributableprior periods, these specific charges relate to our planned separationbroad-based, company-wide Service Alignment Initiative and Workforce Optimization Effort. The fiscal 2017 Workforce Optimization Effort adjustment totaling approximately $5 million represents a reversal of our Dealer Services business, the fiscal 20132016 estimate.
(c) The taxes on the gains on the sale of the businesses were calculated based on the annualized marginal rate in effect during the quarter of the adjustment. The tax amount was adjusted for a book vs. tax basis difference for the year ended June 30, 2017 due to the derecognition of goodwill upon the sale of the business and for the year ended June 30, 2016 due to a previously recorded non tax-deductible goodwill impairment charge,charge.
(d) The tax benefit/provision on the Service Alignment Initiative, Workforce Optimization Effort, and the fiscal 2012gain on the sale of assets related to rights and obligations to resell a third-party expense management platform.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended June 30, | | $ Change | | % Change |
| (Dollars in millions, except per share amounts) | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
| | | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes | | $ | 2,274.6 |
| | $ | 2,076.1 |
| | $ | 2,101.7 |
| | $ | 198.5 |
| | $ | (25.6 | ) | | 10 | % | | (1 | )% |
| Adjustments: | | | | | | | | | | | | | | |
| Separation costs | | 14.9 |
| | — |
| | — |
| | | | | | | | |
| Goodwill impairment | | — |
| | 42.7 |
| | — |
| | | | | | | | |
| Gain on sale of assets | | — |
| | — |
| | (66.0 | ) | | | | | | | | |
Adjusted earnings from continuing operations before income taxes | | $ | 2,289.5 |
| | $ | 2,118.8 |
| | $ | 2,035.7 |
| | $ | 170.7 |
| | $ | 83.1 |
| | 8 | % | | 4 | % |
| | | | | | | | | | | | | | | |
| Provision for income taxes from continuing operations | | $ | 772.0 |
| | $ | 718.0 |
| | $ | 726.5 |
| | $ | 54.0 |
| | $ | (8.5 | ) | | 8 | % | | (1 | )% |
Effective tax rate | | 33.9 | % | | 34.6 | % | | 34.6 | % | | | | | | | | |
| Adjustments: | | | | | | | | | | | | | | |
| Separation costs | | — |
| | — |
| | — |
| | | | | | | | |
| Goodwill impairment | | — |
| | — |
| | — |
| | | | | | | | |
| Gain on sale of assets | | — |
| | — |
| | (24.8 | ) | | | | | | | | |
Adjusted provision for income taxes from continuing operations | | $ | 772.0 |
| | $ | 718.0 |
| | $ | 701.7 |
| | $ | 54.0 |
| | $ | 16.3 |
| | 8 | % | | 2 | % |
Adjusted effective tax rate | | 33.7 | % | | 33.9 | % | | 34.5 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
| Net earnings from continuing operations | | $ | 1,502.6 |
| | $ | 1,358.1 |
| | $ | 1,375.2 |
| | $ | 144.5 |
| | $ | (17.1 | ) | | 11 | % | | (1 | )% |
| Adjustments: | | | | | | | | | | | | | | |
| Separation costs | | 14.9 |
| | — |
| | — |
| | | | | | | | |
| Goodwill impairment | | — |
| | 42.7 |
| | — |
| | | | | | | | |
| Gain on sale of assets | | — |
| | — |
| | (41.2 | ) | | | | | | | | |
| Adjusted net earnings from continuing operations | | $ | 1,517.5 |
| | $ | 1,400.8 |
| | $ | 1,334.0 |
| | $ | 116.7 |
| | $ | 66.8 |
| | 8 | % | | 5 | % |
| | | | | | | | | | | | | | | |
| Diluted earnings per share from continuing operations | | $ | 3.11 |
| | $ | 2.79 |
| | $ | 2.79 |
| | $ | 0.32 |
| | $ | — |
| | 11 | % | | — | % |
| Adjustments: | | | | | | | | | | | | | | |
| Separation costs | | 0.03 |
| | — |
| | — |
| | | | | | | | |
| Goodwill impairment | | — |
| | 0.09 |
| | — |
| | | | | | | | |
| Gain on sale of assets | | — |
| | — |
| | (0.08 | ) | | | | | | | | |
Adjusted diluted earnings per share from continuing operations | | $ | 3.14 |
| | $ | 2.88 |
| | $ | 2.71 |
| | $ | 0.26 |
| | $ | 0.17 |
| | 9 | % | | 6 | % |
(e) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by our Adjusted net earnings from continuing operations plus our Adjusted provision for income taxes.
(f) "Constant dollar basis" provides information that isolates the actual growth of our operations. "Constant dollar basis" is determined by calculating the current year result using foreign exchange rates consistent with the prior year.
Fiscal 20142017 Compared to Fiscal 20132016
Total Revenues
TotalOur revenues, as reported, increased$918.9 million, or 8%, to $12,206.5 million 6% in fiscal 2014, as compared to fiscal 2013,2017, which includes one percentage point of pressure from the net impact of acquisitions, the disposition of our CHSA and COBRA businesses and foreign currency translation. Revenue increased primarily due to anincreasenew business started from new business bookings. Refer to “Analysis of Reportable Segments” for additional discussion of the increases in revenues inrevenue for both of our reportable segments, Employer Services of 8%, or $610.3 million, to $8,535.2 million, anincrease in revenues in PEO Services of 15%, or $297.7 million, to $2,270.9 million, and anincrease in revenues in Dealer Services of 7%, or $131.2 million, to $1,951.4 million. Professional Employer Organization ("PEO") Services.
Total revenues in fiscal 20142017 include interest on funds held for clients of $373.7$397.4 million,, as compared to $420.9$377.3 million in fiscal 2013.2016. The decreaseincrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned to 1.8% in fiscal 2014, as compared to 2.2% in fiscal 2013, partially offset by anincrease in our average client funds balancebalances of 8%,2.7% to $20.7 billion,$23,023.5 million in fiscal 2014.2017.
Total Expenses
Our total expenses, as reported, increased$697.1 million, or 7%, to $10,004.8 million 6% in fiscal 2014,2017, as compared to fiscal 2013.2016. The increase in our total expenses was is primarily due to anincrease in operating expenses of $517.1 million, anincrease in selling, generalPEO services pass-through costs, the restructuring and administrative expenses of $145.0 million, anincrease in systems development and programming costs of $63.7 million and separationdual operations costs related to the planned separationour Service Alignment Initiative, and increased costs to service our client base in support of our Dealer Services business of $14.9 million in fiscal 2014,growing revenue. These increases were partially offset by the goodwill impairment chargedisposition of $42.7 millionour CHSA and COBRA businesses during fiscal 2017.
Operating expenses, as reported, increased 6% in fiscal 2013. Total expenses would have increased approximately 8% without the impact of the 2014 separation costs related to the Dealer Services separation and the fiscal 2013 goodwill impairment charge.
Our total costs of revenues increased$582.9 million, or 9%, to $7,221.4 million in fiscal 2014,2017, as compared to fiscal 2013, primarily due to anincrease in operating expenses of $517.1 million and anincrease in systems development and programming costs of $63.7 million.
Operating expenses increased$517.1 million, or 9% in fiscal 2014, as compared to fiscal 2013, due to the increase in revenues described above, including the increases in2016. PEO Services which has pass-through costs that are re-billable and which include costs for benefits coverage, workers’ compensation coverage and state unemployment taxes for worksite employees. These pass-through costs were $1,736.0$2,628.4 million for fiscal 2014,2017, which included costs for benefits coverage of $1,383.3$2,173.9 million and costs for workers’ compensation and payment of state unemployment taxes of $352.7 million.$454.5 million. These pass-through costs were $1,513.5$2,336.3 million for fiscal 2013,2016, which included costs for benefits coverage of $1,193.2$1,906.0 million and costs for workers’ compensation and payment of state unemployment taxes of $320.3 million. The increase in$430.3 million. Additionally, operating expenses is alsoincreased due to higher labor-related expensescosts to service our client base in Employer Servicessupport of $65.9 million.our growing revenue, including dual operation costs associated with our Service Alignment Initiative, partially offset by the disposition of our CHSA and COBRA businesses.
Systems development and programming costs, as reported, increased$63.7 million, or 10%, 4% in fiscal 2014, as2017, when compared to fiscal 2013,the same period in the prior year, due to increased investments and costs to develop, support, and maintain our products, partially offset by a higher proportion of capitalized costs of our strategic projects.
Selling, general and administrative expenses, as reported, increased$145.0 million, or 6%, in fiscal 2014,2017, as compared to fiscal 2013.2016. The increase in expenses was primarily related to an increase in selling expenses of $81.8 million resulting from investments in our salesforcesales organization. Selling, general and an increase in stock-based compensation expense of $29.7 million,administrative expenses also increased due to additional restructuring charges which primarily relate to our Service Alignment Initiative and $17.9 million higher severance expenses in fiscal 2014, as compared to fiscal 2013.Workforce Optimization Effort.
Separation costs represent the incremental costs associated with our planned separation of Dealer Services and totaled $14.9 million for fiscal 2014. We expect to incur separation costs of between $40 million and $50 million during the fiscal year ending June 30, 2015 ("fiscal 2015").
Other Income, net
| | | (In millions) | | | | | | | |
| Years ended June 30, | | | | | | | | 2017 | | 2016 | | $ Change |
| (Dollars in millions) | | 2014 | | 2013 | | $ Change | |
| | | | | | | | |
| Interest income on corporate funds | | $ | (56.2 | ) | | $ | (64.5 | ) | | $ | (8.3 | ) | | $ | (76.7 | ) | | $ | (62.4 | ) | | $ | 14.3 |
|
| Realized gains on available-for-sale securities | | (20.4 | ) | | (32.1 | ) | | (11.7 | ) | | (5.3 | ) | | (5.1 | ) | | 0.2 |
|
| Realized losses on available-for-sale securities | | 3.9 |
| | 3.5 |
| | (0.4 | ) | | 3.1 |
| | 10.1 |
| | 7.0 |
|
| Gains on sales of buildings | | — |
| | (2.2 | ) | | (2.2 | ) | |
| Other, net | | (0.2 | ) | | (0.9 | ) | | (0.7 | ) | |
| Gain on sale of businesses (see Note 3 of the Consolidated Financial Statements) | | | (205.4 | ) | | (29.1 | ) | | 176.3 |
|
| Gain on sale of building | | | — |
| | (13.9 | ) | | (13.9 | ) |
| Other income, net | | $ | (72.9 | ) | | $ | (96.2 | ) | | $ | (23.3 | ) | | $ | (284.3 | ) | | $ | (100.4 | ) | | $ | 183.9 |
|
Other income, net, decreased $23.3increased $183.9 million in fiscal 2014,2017, as compared to fiscal 2013.2016. The decreaseincrease was primarily due to a decreasethe gain on sale of the CHSA and COBRA businesses of $205.4 million in realized gainsfiscal 2017, partially offset by the gain on available-for-sale securitiessale of $11.7the AdvancedMD ("AMD") business of $29.1 million and a decrease in interest incomethe gain on corporate funds of $8.3 million in the fiscal 2014, as compared to the fiscal 2013. The decrease in interest income on corporate funds resulted
from lower average interest rates of 1.5% in fiscal 2013 to 1.4% in fiscal 2014 and lower average daily corporate funds, which decreased from $4.2 billion in fiscal 2013 to $4.1 billion in fiscal 2014. In addition, we recognized gains of $2.2 million pertaining to the sale of two buildings duringa building of $13.9 million in fiscal 2013.2016.
Earnings from Continuing Operations before Income Taxes
Earnings from continuing operations before income taxes increased$198.5 million, or 10%, 13% due to $2,274.6 million in fiscal 2014, which includes the effectgain on the sale of the $14.9 million of separation costs directly attributable toCHSA and COBRA businesses as well as the proposed separation of our Dealer Services business, compared to $2,076.1 millionincreases in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge. Overall margin increased approximately 20 basis points from 18.4% in fiscal 2013 to 18.6% in fiscal 2014. This increase was due to margin improvements in our business segments, partially offset by approximately 70 basis points of margin decline related to the continued decline in interest on funds held for clientsrevenues and expenses discussed above, and 30 basis points of margin decline due to increased stock-based compensation costs. Overall margin also benefited 20 basis points from the lower costs related to the incremental separation costs of $14.9 million included in fiscal 2014 compared to the $42.7 million charge related to the goodwill impairment in fiscal 2013.
Adjusted Earnings from Continuing Operations before Income Taxes
Adjusted earnings from continuing operations before income taxes increased $170.7 million, or 8%, to $2,289.5 million, in fiscal 2014, compared to $2,118.8 million for fiscal 2013, due to increased revenue and margin improvement in our business segments, partially offset by the continued declinenet impact of the Service Alignment Initiative and Workforce Optimization Effort charges in interest on funds held for clients. Margin, adjusted for the fiscal 2014 separation costs directly attributable2017 and 2016. Overall margin increased from 19.2% in fiscal 2016 to 20.4% in fiscal 2017 primarily due to the proposed separationgain on the sale of our Dealer Services businessthe CHSA and COBRA businesses, and operating efficiencies, partially offset by the net charges related to the Service Alignment Initiative and Workforce Optimization Effort in fiscal 2017 and 2016, the gain on the sale of the building and the gain on the sale of AMD in fiscal 2013 goodwill impairment charge2016, and additional interest expense related to our ADP AdvancedMDSeptember 2015 $2.0 billion senior note issuance in fiscal 2016.
Adjusted EBIT
Adjusted EBIT excludes certain interest amounts, the gain on the sale of the CHSA and COBRA businesses, the impact of the charges related to the Service Alignment Initiative and the Workforce Optimization Effort, and the gain on the sale of the building and the gain on the sale of the AMD business remained flat at 18.8%. Margin improvements in our business segments werefiscal 2016.
Adjusted EBIT increased 8% due to the increases in revenues and expenses discussed above. Overall Adjusted EBIT margin increased from 19.5% in fiscal 2016 to 19.8% in fiscal 2017 due to operating efficiencies partially offset primarily by approximately 7020 basis points of margin decreasepressure from dual operation costs related to the continued decline in interest on fund held for clients discussed above and 30 basis of margin decline due to increased stock-based compensation costs.our Service Alignment Initiative.
Provision for Income Taxes
The effective tax rate in fiscal 20142017 and 20132016 was 33.9%31.5% and 34.6%33.2%, respectively. The decrease in the effective tax rate is due to tax incentives associated with the domestic production activity deduction and research tax credit for prior tax years which decreased our effective tax rate by 210 basis points in fiscal 2017 and the adoption of ASU 2016-09 related to the new accounting guidance for excess tax benefits on stock-based compensation (as further explained in Note 1 of our Consolidated Financial Statements), which decreased our effective tax rate by 130 basis points in fiscal 2017. These decreases were partially offset by the impact of the sale of the CHSA and COBRA businesses and a lower benefit related to the usage of foreign tax credits in fiscal 2017.
Adjusted Provision for Income Taxes
The effective tax rate, adjusted for the gain on the sale of the CHSA and COBRA businesses, the impact of the charges related to the Service Alignment Initiative and Workforce Optimization Effort, the gain on the sale of the building and the gain on the sale of the AMD business in fiscal 2014 includes a 0.2 percentage point increase due to2016, for fiscal 2017 and 2016 was 30.9% and 33.3%, respectively. The decrease in the non tax-deductible separation costs related to our planned separation of our Dealer Services business and theadjusted effective tax rate for fiscal 2013 includes a 0.7 percentage point increase due to the fiscal 2013 non tax-deductible goodwill impairment charge. The remaining decrease of 0 basis points is due to tax incentives associated with the resolution of certaindomestic production activity deduction and research tax matterscredit for prior tax years which decreased our effective tax rate by 220 basis points in fiscal 2017 and the reversaladoption of a valuation allowance, partiallyASU 2016-09 related to the new accounting guidance for excess tax benefits on stock-based compensation (as further explained in Note 1 of our Consolidated Financial Statements), which decreased our effective tax rate by 130 basis points in fiscal 2017. This decrease was offset by an increase in foreign taxes and reduceda lower benefit related to the usage of foreign tax credits available.in fiscal 2017.
Net Earnings from Continuing Operations and Diluted Earnings per ShareEPS from Continuing Operations
Net earnings from continuing operations, as reported, increased$144.5 million, or 11%, to $1,502.6 million 16% in fiscal 2014,2017 due to the increase in earnings from continuing operations before income taxes and the reduction in our effective tax rate described above, when compared to $1,358.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge. 2016.
Diluted earnings per share from continuing operations increased 11%18% to $3.11$3.85 in fiscal 2014,2017, as compared to $2.79$3.25 in fiscal 2016. Diluted earnings per share from continuing operations reflects the increase in net earnings from continuing operations (inclusive of a $0.07 impact from the adoption of ASU 2016-09 in fiscal 2017) and the impact of fewer shares outstanding, resulting from the repurchase of approximately 13.5 million shares in fiscal 2017 and 13.8 million shares in fiscal 2016, partially offset by the issuances of shares under our employee benefit plans.
Adjusted Net Earnings from Continuing Operations and Adjusted Diluted EPS from Continuing Operations
Adjusted net earnings from continuing operations increased 11% in fiscal 2017 due to the increase in adjusted EBIT and reduction in our effective tax rate described above when compared to fiscal 2016.
For fiscal 2017, our Adjusted diluted EPS from continuing operations reflects the increase in Adjusted net earnings from continuing operations (inclusive of a $0.07 impact from the adoption of ASU 2016-09 in fiscal 2017) and the impact of fewer shares outstanding as a result of the repurchase of 13.5 million shares during fiscal 2017 and the repurchase of 13.8 million shares in fiscal 2016, partially offset by shares issued under our employee benefit plans.
Fiscal 2016 Compared to Fiscal 20152013.
Total Revenues
Our revenues, as reported, increased 7% in fiscal 2016, despite two percentage points of combined pressure from foreign currency translation and the disposition of the AMD business in September 2015, primarily due to new business started during the past twelve months from new business bookings growth. Refer to “Analysis of Reportable Segments” for additional discussion of the increases in revenue for both of our reportable segments, Employer Services and PEO Services.
Total revenues in fiscal 2016 include interest on funds held for clients of $377.3 million, as compared to $377.7 million in fiscal 2015. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned in fiscal 2016, as compared to fiscal 2015, partially offset by the increase in our average client funds balances of 2.8% to $22,418.7 million in fiscal 2016.
Total Expenses
Our total expenses, as reported, increased 7% in fiscal 2016, as compared to the same period in the prior year. The increase is primarily due to an increase in PEO services pass-through costs as well as an increase in selling and implementation expenses to support our growth in new business bookings as we experienced continued demand for additional HCM solutions, including products that assist businesses in complying with the ACA. Total expenses also increased due to increased costs to service our client base in support of our growing revenue, and an increase in severance expenses, primarily related to our Workforce Optimization Effort. These increases were partially offset by the impact of foreign currency translation.
Operating expenses, as reported, increased 7% in fiscal 2016, as compared to fiscal 2015. PEO Services pass-through costs were $2,336.3 million for fiscal 2016, which included costs for benefits coverage of $1,906.0 million and costs for workers’ compensation and payment of state unemployment taxes of $430.3 million. These pass-through costs were $2,015.9 million for fiscal 2015, which included costs for benefits coverage of $1,627.1 million and costs for workers’ compensation and payment of state unemployment taxes of $388.8 million. Additionally, operating expenses increased due to higher costs to implement and service our client base in support of our growing revenue, including products that assist with ACA compliance which contributed to our strong new business bookings over the past several quarters. These increases were partially offset by the impact of foreign currency translation.
Systems development and programming costs, as reported, increased 1% in fiscal 2016, when compared to the same period in the prior year, due to increased investments and costs to develop, support, and maintain our products, partially offset by a higher proportion of capitalized costs of our strategic projects and the impact of foreign currency translation.
Selling, general and administrative expenses, as reported, increased 6% in fiscal 2016, as compared to fiscal 2015. The increase was primarily related to an increase in selling expenses to support our growth in new business bookings as we experienced continued demand for our HCM products, particularly those that are designed to assist businesses in complying with the ACA. Selling, general and administrative expenses also increased due to $57.6 million of additional severance charges, of which $48.2 million relate to our Workforce Optimization Effort, and a $10.7 million reversal of reserves in fiscal 2015 related to our former Dealer Services business financing arrangements which were sold to a third party. These increases were partially offset by the impact of foreign currency translation.
Other Income, net
|
| | | | | | | | | | | | |
| (In millions) | | | | | | |
| Years ended June 30, | | 2016 | | 2015 | | $ Change |
| Interest income on corporate funds | | $ | (62.4 | ) | | $ | (56.9 | ) | | $ | 5.5 |
|
| Realized gains on available-for-sale securities | | (5.1 | ) | | (6.8 | ) | | (1.7 | ) |
| Realized losses on available-for-sale securities | | 10.1 |
| | 1.9 |
| | (8.2 | ) |
| Gain on sale of notes receivable | | — |
| | (1.4 | ) | | (1.4 | ) |
| Gain on sale of AMD | | (29.1 | ) | | — |
| | 29.1 |
|
| Gain on sale of building | | (13.9 | ) | | — |
| | 13.9 |
|
| Other income, net | | $ | (100.4 | ) | | $ | (63.2 | ) | | $ | 37.2 |
|
Other income, net, increased $37.2 million in fiscal 2016, as compared to fiscal 2015. The increase was primarily due to the gain on the sale of the AMD business of $29.1 million and the gain on the sale of a building of $13.9 million.
Earnings from Continuing Operations before Income Taxes
Earnings from continuing operations before income taxes increased 8% due to increases in revenues and expenses discussed above and includes an unfavorable impact from foreign currency translation of one percentage point. Overall margin increased from 18.9% in fiscal 2015 to 19.2% in fiscal 2016 due to the gain on the sale of the AMD business, the gain on the sale of the building and decreased selling expenses in the fourth quarter of fiscal 2016 as compared to fiscal 2015. These increases were offset by an increase in interest expense related to our September 2015 $2.0 billion senior note issuance, investments in implementation and operational resources to support our revenue growth, and the charges related to our Workforce Optimization Effort.
Adjusted EBIT
Adjusted EBIT, which excludes certain interest amounts, the impact of the AMD business sale, the gain on the sale of a building and the charges related to our Workforce Optimization Effort, increased 10% due to the increases in revenues and expenses discussed above. Overall Adjusted EBIT margin increased from 18.8% in fiscal 2015 to 19.5% in fiscal 2016 due to lower selling expenses in the fourth quarter of fiscal 2016 as compared to fiscal 2015, partially offset by investments in implementation and operational resources to support our revenue growth.
Provision for Income Taxes
The effective tax rate in fiscal 2016 and 2015 was 33.2% and 33.5%, respectively. The decrease in the effective tax rate was due to the usage of foreign tax credits in a repatriation of foreign earnings in fiscal 2016, partially offset by the resolution of certain tax matters in fiscal 2015.
Adjusted Provision for Income Taxes
The effective tax rate, adjusted for the impact of the Workforce Optimization Effort, sale of the AMD business, and a gain on the sale of a building, for fiscal 2016 and 2015 was 33.3% and 33.5%, respectively. The decrease in the Adjusted effective tax rate was due to the usage of foreign tax credits in a repatriation of foreign earnings in fiscal 2016, partially offset by the resolution of certain tax matters during fiscal 2015.
Net Earnings from Continuing Operations and Diluted EPS from Continuing Operations
Net earnings from continuing operations increased 8% on higher earnings from continuing operations before income taxes and a lower effective tax rate, as described above. Net earnings from continuing operations growth was unfavorably impacted one percentage point by foreign currency translation in fiscal 2016. Diluted EPS from continuing operations increased 12% to $3.25 in fiscal 2016, as compared to $2.89 in fiscal 2015. Diluted EPS growth was unfavorably impacted one percentage point due to foreign currency translation in fiscal 2016, as compared to fiscal 2015.
In fiscal 2014,2016, our diluted earnings per shareEPS from continuing operations reflects the increase in net earnings from continuing operations and the impact of fewer shares outstanding, resulting from the net impactrepurchase of cumulative share repurchases,approximately 13.8 million shares in fiscal 2016 and 18.2 million shares in fiscal 2015, partially offset by the issuances of shares under our stock-based compensation programs.employee benefit plans.
Adjusted Net Earnings from Continuing Operations and Adjusted Diluted Earnings per ShareEPS from Continuing Operations
Adjusted net earnings from continuing operations increased $116.7 million, or 8%, to $1,517.5 million,increased 9% in fiscal 2014, as2016 due to the increase in revenues and expenses described above and the impact of the lower Adjusted effective tax rate when compared to $1,400.8 million for fiscal 2013, and the adjusted2015.
For fiscal 2016, our Adjusted diluted earnings per shareEPS from continuing operationsincreased 9%, to $3.14 for fiscal 2014, compared to $2.88, for fiscal 2013. The increase in adjusted diluted earnings per share from continuing operations for fiscal 2014 reflects the increase in adjustedAdjusted net earnings from continuing operations and the impact of fewer shares outstanding resulting fromas a result of the net impactrepurchase of cumulative share repurchases,13.8 million shares during fiscal 2016 and the repurchase of 18.2 million shares in fiscal 2015, offset by the issuances of shares issued under our stock-based compensation programs.
Fiscal 2013 Compared to Fiscal 2012employee benefit plans.
Total Revenues
Our total revenues increased $692.2 million, or 7%, to $11,287.6 million in fiscal 2013, as compared to fiscal 2012, due to an increase in revenues in Employer Services of 6%, or $475.5 million, to $7,924.9 million, PEO Services of 11%, or $201.8 million, to $1,973.2 million, and Dealer Services of 9%, or $144.0 million, to $1,820.2 million. Total revenues would have increased approximately 6% without the impact of recently completed acquisitions and the impact to revenues pertaining to the sale in fiscal 2012 of assets related to rights and obligations to resell a third-party expense management platform. In addition, revenues decreased $61.3 million due to changes in foreign currency exchange rates.
Total revenues for fiscal 2013 include interest on funds held for clients of $420.9 million, as compared to $493.3 million in fiscal 2012. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned to 2.2% during fiscal 2013, as compared to 2.8% for fiscal 2012, partially offset by an increase in our average client funds balance of 7%, to $19.2 billion in fiscal 2013.
Total Expenses
Our total expenses increased $643.2 million, or 7%, to $9,307.7 million in fiscal 2013, as compared to fiscal 2012. The increase in our total expenses was due to an increase in operating expenses of $376.3 million, an increase in selling, general and administrative expenses of $164.5 million, and an increase in systems development and programming costs of $61.6 million. Total expenses would have increased approximately 6% without the impact of recently completed acquisitions.
Our total costs of revenues increased 7%, to $6,638.5 million in fiscal 2013, as compared to fiscal 2012 due to an increase in operating expenses of $376.3 million and an increase in systems development and programming costs of $61.6 million.
Operating expenses increased $376.3 million, or 7%, in fiscal 2013, as compared to fiscal 2012 due to the increase in revenues described above, including the increases in PEO Services, which has pass-through costs that are re-billable and which includes costs for benefits coverage, workers’ compensation coverage and state unemployment taxes for worksite employees. These pass-through costs were $1,513.5 million for fiscal 2013, which included costs for benefits coverage of $1,193.2 million and costs for workers’ compensation and payment of state unemployment taxes of $320.3 million. These pass-through costs were $1,363.6 million for fiscal 2012, which included costs for benefits coverage of $1,060.3 million and costs for workers’ compensation and payment of state unemployment taxes of $303.3 million. The increase in operating expenses is also due to expenses related to businesses acquired of $84.4 million and higher labor-related expenses in Employer Services of $69.4 million, partially offset by a decrease of $34.0 million due to changes in foreign currency exchange rates.
Systems development and programming costs increased $61.6 million, or 10%, in fiscal 2013, as compared to fiscal 2012, due to increased costs to develop, support, and maintain our products and increased costs related to businesses acquired of $6.6 million, partially offset by a decrease of $6.7 million due to changes in foreign currency exchange rates.
Selling, general and administrative expenses increased $164.5 million, or 7%, in fiscal 2013, as compared to fiscal 2012. The increase in expenses was related to an increase in selling expenses of $72.9 million resulting from investments in our salesforce and an increase in expenses of businesses acquired of $16.3 million, partially offset by a decrease of $24.6 million due to changes in foreign currency exchange rates. Additionally, selling, general, and administrative expenses decreased $24.1 million due to lower severance expenses in fiscal 2013, as compared to fiscal 2012.
Other Income, net
|
| | | | | | | | | | | | |
| Years ended June 30, | | | | | | |
| (Dollars in millions) | | 2013 | | 2012 | | $ Change |
| | | | | | | |
| Interest income on corporate funds | | $ | (64.5 | ) | | $ | (85.2 | ) | | $ | (20.7 | ) |
| Realized gains on available-for-sale securities | | (32.1 | ) | | (32.1 | ) | | — |
|
| Realized losses on available-for-sale securities | | 3.5 |
| | 7.7 |
| | 4.2 |
|
| Impairment losses on available-for-sale securities | | — |
| | 5.8 |
| | 5.8 |
|
| Impairment losses on assets held for sale | | — |
| | 2.2 |
| | 2.2 |
|
| Gains on sales of buildings | | (2.2 | ) | | — |
| | 2.2 |
|
| Gain on sale of assets | | — |
| | (66.0 | ) | | (66.0 | ) |
| Other, net | | (0.9 | ) | | (3.2 | ) | | (2.3 | ) |
| Other income, net | | $ | (96.2 | ) | | $ | (170.8 | ) | | $ | (74.6 | ) |
Other income, net, decreased $74.6 million in fiscal 2013, as compared to fiscal 2012. The decrease was due to a $66.0 million gain on the sale of assets related to rights and obligations to resell a third-party expense management platform in fiscal 2012 and a decrease in interest income on corporate funds of $20.7 million in fiscal 2013, as compared to fiscal 2012. The decrease in interest income on corporate funds resulted from lower average interest rates from 2.1% in fiscal 2012 to 1.5% in fiscal 2013, partially offset by increasing average daily corporate funds, which increased from $4.0 billion in fiscal 2012 to $4.2 billion in fiscal 2013. Such decreases were partially offset by gains of $2.2 million pertaining to the sale of two buildings in fiscal 2013, a $5.8 million impairment loss on available-for-sale securities in fiscal 2012, and an impairment loss of $2.2 million related to assets previously classified as assets held for sale in fiscal 2012.
Earnings from Continuing Operations before Income Taxes
Earnings from continuing operations before income taxes decreased $25.6 million, or 1%, to $2,076.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge, compared to $2,101.7 million in fiscal 2012, which includes the effect of a $66.0 million gain on the sale of assets related to the rights and obligations to resell a third-party expense management platform. Overall margin decreased approximately 140 basis points from 19.8% in fiscal 2012 to 18.4% in fiscal 2013 with approximately 40 basis points of margin decrease attributable to the goodwill impairment charge, 20 basis points of margin decrease attributable to acquisitions completed in fiscal 2012, and 90 basis points related to the continued decline in interest on funds held for clients discussed above. In addition, overall margin decreased approximately 60 basis points due to the fiscal 2012 gain on the sale of assets related to the rights and obligations to resell a third-party management platform. These decreases were partially offset by margin improvements in our business segments.
Adjusted Earnings from Continuing Operations before Income Taxes
Adjusted earnings from continuing operations before income taxes increased $83.1 million, or 4%, to $2,118.8 million in fiscal 2013, as compared to $2,035.7 million for fiscal 2012 due to increased revenue and margin improvement in our business segments, partially offset by the continued decline in interest on funds held for clients. Margin, adjusted for the 2013 goodwill impairment charge related to our ADP AdvancedMD business and a gain on the sale of assets related to rights and obligations to resell a third-party expense management platform in fiscal 2012, decreased approximately 40 basis points from 19.2% in fiscal 2012 to 18.8% in fiscal 2013 due to approximately 90 basis points of margin decline related to the continued decline in interest on funds held for clients discussed above, partially offset by margin improvements in our business segments.
Provision for Income Taxes
The effective tax rates in both fiscal 2013 and 2012 were 34.6%. Our effective tax rate for fiscal 2013 includes the effect of a non tax-deductible goodwill impairment charge of $42.7 million that increased our effective tax rate by 0.7 percentage points in the period. The 0.7 percentage point increase was offset by a reduction in foreign taxes and the availability of higher foreign tax credits in fiscal 2013, as compared to 2012.
Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations
Net earnings from continuing operations decreased $17.1 million, or 1%, to $1,358.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge, compared to $1,375.2 million in fiscal 2012, which included the effect of an after tax gain on the sale of assets of $41.2 million. Diluted earnings per share from continuing operations was flat in fiscal 2013, as compared to $2.79 in fiscal 2012.
In fiscal 2013, our diluted earnings per share from continuing operations reflects the decrease in net earnings from continuing operations and the impact of fewer shares outstanding resulting from the net impact of cumulative share repurchases, offset by the issuances of shares under our stock-based compensation programs.
Adjusted Net Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations
Adjusted net earnings from continuing operations increased $66.8 million, or 5%, to $1,400.8 million, in fiscal 2013, as compared to $1,334.0 million for fiscal 2012, and the adjusted diluted earnings per share from continuing operations increased 6%, to $2.88 for fiscal 2013, compared to $2.71 for fiscal 2012. The increase in adjusted diluted earnings per share from continuing operations for fiscal 2013 reflects the increase in adjusted net earnings from continuing operations and the impact of fewer shares outstanding resulting from the net impact of cumulative share repurchases, offset by the issuances of shares under our stock-based compensation programs.
ANALYSIS OF REPORTABLE SEGMENTS
Revenues from Continuing Operations
(Dollars inIn millions)
| | | | | | | | | | | | | | | | | | | Years Ended | | % Change |
| | | Years ended June 30, | | $ Change | | % Change | | June 30, | | As Reported | | Constant Dollar Basis |
| | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
| Employer Services | | $ | 8,535.2 |
| | $ | 7,924.9 |
|
| $ | 7,449.4 |
| | $ | 610.3 |
| | $ | 475.5 |
| | 8 | % | | 6 | % | | $ | 9,535.2 |
| | $ | 9,211.9 |
| | $ | 8,815.1 |
| | 4 | % | | 5 | % | | 4 | % | | 6 | % |
| PEO Services | | 2,270.9 |
| | 1,973.2 |
| | 1,771.4 |
| | 297.7 |
| | 201.8 |
| | 15 | % | | 11 | % | | 3,483.6 |
| | 3,073.1 |
| | 2,647.2 |
| | 13 | % | | 16 | % | | 13 | % | | 16 | % |
| Dealer Services | | 1,951.4 |
| | 1,820.2 |
| | 1,676.2 |
| | 131.2 |
| | 144.0 |
| | 7 | % | | 9 | % | |
| Other | | (0.9 | ) | | 1.7 |
| | 5.5 |
| | | | | | | | | | (10.6 | ) | | 1.9 |
| | 69.8 |
| | n/m |
| | n/m |
| | n/m |
| | n/m |
|
| Reconciling items: | | |
| | |
| | | | | | | | | | | |
| Reconciling item: | | | |
| | |
| | | | | | | | | | |
| Client fund interest | | (550.1 | ) | | (432.4 | ) | | (307.1 | ) | | | | | | | | | | (628.4 | ) | | (619.1 | ) | | (593.6 | ) | | n/m |
| | n/m |
| | n/m |
| | n/m |
|
| | | $ | 12,206.5 |
| | $ | 11,287.6 |
| | $ | 10,595.4 |
| | $ | 918.9 |
| | $ | 692.2 |
| | 8 | % | | 7 | % | | $ | 12,379.8 |
| | $ | 11,667.8 |
| | $ | 10,938.5 |
| | 6 | % | | 7 | % | | 6 | % | | 8 | % |
Earnings from Continuing Operations before Income Taxes
(Dollars inIn millions)
| | | | | | | | | | | | | | | | | | | Years Ended | | % Change |
| | | Years ended June 30, | | $ Change | | % Change | | June 30, | | As Reported | | Constant Dollar Basis |
| | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
| Employer Services | | $ | 2,517.8 |
| | $ | 2,216.8 |
| | $ | 2,054.6 |
| | $ | 301.0 |
| | $ | 162.2 |
| | 14 | % | | 8 | % | | $ | 2,921.3 |
| | $ | 2,800.4 |
| | $ | 2,595.4 |
| | 4 | % | | 8 | % | | 4 | % | | 9 | % |
| PEO Services | | 234.3 |
| | 199.7 |
| | 171.1 |
| | 34.6 |
| | 28.6 |
| | 17 | % | | 17 | % | | 448.6 |
| | 371.2 |
| | 301.8 |
| | 21 | % | | 23 | % | | 21 | % | | 23 | % |
| Dealer Services | | 428.1 |
| | 375.3 |
| | 322.1 |
| | 52.8 |
| | 53.2 |
| | 14 | % | | 17 | % | |
| Other | | (355.5 | ) | | (283.3 | ) | | (139.0 | ) | | | | | | | | | | (210.4 | ) | | (317.8 | ) | | (232.9 | ) | | n/m |
| | n/m |
| | n/m |
| | n/m |
|
| Reconciling items: | | |
| | |
| | | | | | | | | | | |
| Reconciling item: | | | |
| | |
| | | | | | | | | | |
| Client fund interest | | (550.1 | ) | | (432.4 | ) | | (307.1 | ) | | | | | | | | | | (628.4 | ) | | (619.1 | ) | | (593.6 | ) | | n/m |
| | n/m |
| | n/m |
| | n/m |
|
| | | $ | 2,274.6 |
| | $ | 2,076.1 |
| | $ | 2,101.7 |
| | $ | 198.5 |
| | $ | (25.6 | ) | | 10 | % | | (1 | )% | | $ | 2,531.1 |
| | $ | 2,234.7 |
| | $ | 2,070.7 |
| | 13 | % | | 8 | % | | 13 | % | | 9 | % |
Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are charged to the reportable segments based on management’s responsibility for the applicable costs. The primary components of the “Other” segment are the results of operations of ADP Indemnity (a wholly-owned captive insurance company that provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services worksite employees), non-recurring gains and losses, miscellaneous processing services, such as customer financing transactions, and certain charges and expenses that have not been allocated to the reportable segments, such as stock-based compensation expense and the fiscal 2013 goodwill impairment charge.
In addition, there is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of 4.5%. This allocation is made for management reasons so that the reportable segments’ results are presented on a consistent basis without the impact of fluctuations in interest rates. This allocation is a reconciling item to our reportable segments’ revenues from continuing operations and earnings from continuing operations before income taxes and is eliminated in consolidation.
Employer Services
Fiscal 20142017 Compared to Fiscal 20132016
Revenues from continuing operations
Employer Services' revenues, from continuing operations as reported, increased$610.3 million, or 8%, to $8,535.2 million 4% in fiscal 2014,2017, as compared to fiscal 2013.2016, which includes one percentage point of pressure from the net impact of acquisitions, the disposition of our CHSA and COBRA businesses, and foreign currency translation. Revenues from continuing operations increased primarily due to new business started during the year from new business bookings growth,bookings. Our revenues also benefited from the impact of an increase in the number of employees on our clients’ payrolls andas our pays per control increased 2.4% in fiscal 2017 as compared to fiscal 2016. The increases were partially offset by the impact of price increases.client losses and the sale of the CHSA and COBRA businesses during fiscal 2017. Our worldwide client revenue retention rate infor fiscal 2014 increased approximately 102017 decreased 50 basis points to 91.4%90.0% as compared to our rate infor fiscal 20132016, primarily driven by the lower retention on our legacy client platforms and the anticipated loss of a large client within our U.S. pays per control increased 2.8% in fiscal 2014. former CHSA business.
Earnings from Continuing Operations before Income Taxes
Employer Services’ earnings from continuing operations before income taxes, as reported, increased$301.0 million, or 14%, to $2,517.8 million 4% in fiscal 2014,2017, as compared to fiscal 2013. The increase was due to the increase in revenues from continuing operations of $610.3 million discussed above, which was partially offset by an increase in expenses of $309.3 million. Expenses increased in fiscal 2014 due to investments in our salesforce and labor-related costs as compared to 2013, both of which grew slower than Employer Services' revenues. Overall margin increased approximately 150 basis points from 28.0% to 29.5% for fiscal 2014, as compared to fiscal 2013, due to increased operating scale.
Fiscal 2013 Compared to Fiscal 2012
Revenues from continuing operations
Employer Services' revenues from continuing operations increased $475.5 million, or 6%, to $7,924.9 million in fiscal 2013, as compared to fiscal 2012. Revenues from continuing operations for our Employer Services business would have increased approximately 5% without the impact of acquisitions and revenues pertaining to the sale in fiscal 2012 of assets related to rights and obligations to resell a third-party expense management platform. Revenues from continuing operations increased due to new business started during the year from new business bookings growth, an increase in the number of employees on our clients’ payrolls, and the impact of price increases. Our worldwide client revenue retention rate in fiscal 2013 increased 40 basis points to 91.3% as compared to our rate in fiscal 2012 and U.S. our pays per control increased 2.8% in fiscal 2013.
Earnings from Continuing Operations before Income Taxes
Employer Services' earnings from continuing operations before income taxes increased $162.2 million, or 8%, to $2,216.8 million in fiscal 2013, as compared to fiscal 2012.2016. The increase was due to the increase inincreased revenues of $475.5 million discussed above, which was partially offset by an increase in expenses of $313.3$202.4 million. In addition to anThe increase in expenses is related to increased costs of servicing our clients on growing revenues expenses increased in fiscal 2013 due toas well as investments in our salesforcesales organization, partially offset by the disposition of the CHSA and labor-related costs over the same period prior year levels coupled with the effects of acquisitions. OverallCOBRA businesses during fiscal 2017.
Employer Services' overall margin increased approximately 40 basis points from 27.6%30.4% to 28.0%30.6% for fiscal 2013,2017, as compared to fiscal 2012, and included the benefit of increased operating scale,2016. This 20 basis point increase was driven by operational efficiencies partially offset by approximately 5030 basis points of margin decline attributablepressure from dual operation costs related to acquisitions.
PEO Servicesour Service Alignment Initiative.
Fiscal 20142016 Compared to Fiscal 20132015
Revenues
PEOEmployer Services' revenues, as reported, increased$297.7 million, or 15%, to $2,270.9 million for 5% in fiscal 2014,2016, as compared to fiscal 2013. Such revenues include pass-through costs2015, despite a negative impact of $1,736.0 million for fiscal 2014 and $1,513.5 million for fiscal 2013 associated with benefits coverage, workers' compensation coverage, and state unemployment taxes for worksite employees. The increase in revenues wasone percentage point from foreign currency translation. Revenues increased due to a 15% increase innew business started from new business bookings, the average numberimpact of worksite employees, resulting fromprice increases, and an increase in the number of new clientsemployees on our clients’ payrolls as our U.S. pays per control increased 2.5% in fiscal 2016 as compared to fiscal 2015. These increases were partially offset by the impact of client losses and growth inforeign currency translation. Our worldwide client revenue retention rate for fiscal 2016 decreased 100 basis points to 90.5% as compared to our existing clients.rate for fiscal 2015 primarily due to elevated losses on our legacy platforms.
Earnings from Continuing Operations before Income Taxes
PEOEmployer Services’ earnings from continuing operations before income taxes, as reported, increased$34.6 million, or 17%, to $234.3 million for 8% in fiscal 2014,2016, as compared to fiscal 2013. Earnings from continuing operations before income taxes increased2015. The increase was due to growthincreased revenues discussed above, which was partially offset by an increase in earningsexpenses of $191.8 million. The increase in expenses is related to theincreased costs of servicing our clients, as well as increased selling and implementation expenses due to new business bookings and associated implementation costs, including an increase in costs related to assisting our clients with ACA compliance. These increases were partially offset by the average numberimpact of worksite employees. Overallforeign currency translation.
Employer Services' overall margin increased approximately 20 basis points from 10.1%29.4% to 10.3%30.4% for fiscal 2014,2016, as compared to fiscal 2013,2015. This increase is due to lower direct product cost and operational efficiency,selling expenses in the fourth quarter of fiscal 2016 as compared to fiscal 2015 as well as an increase of 30 basis points from foreign currency translation, partially offset by higher selling expenses relatedinvestments in implementation and operational resources to strong new business bookings.support our revenue growth.
PEO Services
Fiscal 20132017 Compared to Fiscal 20122016
Revenues
PEO Services' revenues as reported increased $201.8 million, or 11%, to $1,973.2 million13% in fiscal 2013,2017, as compared to fiscal 2012.2016. Such revenues include pass-through costs of $1,513.5$2,628.4 million for fiscal 2013year 2017 and $1,363.6$2,336.3 million for fiscal 2012year 2016 associated with benefits coverage, workers' compensation coverage, and state unemployment taxes for worksite employees. The increase in revenues was due to a 9%12% increase in the average number of worksite employees, resulting fromdriven by an increase in the number of new PEO Services clients and growth in our existing clients.
Earnings from Continuing Operations before Income Taxes
PEO Services' earnings from continuing operations before income taxes increased $28.6 million, or 17%, to $199.7 million for fiscal 2013, as compared to fiscal 2012. Earnings from continuing operations before income taxes increased due to growth in earnings related to the increase in the average number of worksite employees. Overall margin increased approximately 40 basis points from 9.7% to 10.1% for fiscal 2013, as compared to fiscal 2012, resulting from slower growth in pass-through costs.
Dealer Services
Fiscal 2014 Compared to Fiscal 2013
Revenues
Dealer Services' revenues increased$131.2 million, or 7%, to $1,951.4 million for fiscal 2014, as compared to fiscal 2013. This increase is driven by new business installed, improved client retention, and digital advertising revenues.
Earnings from Continuing Operations before Income Taxes
Dealer Services'PEO Services’ earnings from continuing operations before income taxes increased $52.8 million, or 14%, to $428.1 million for 21% in fiscal 2014,2017, as compared to fiscal 2013. This 2016. The increase was due to the increase inincreased revenues of $131.2 million discussed above, andwhich was partially offset by higher operatingan increase in expenses of $333.1 million. This increase in expenses is primarily related to implementing and servicing new clients and products.an increase in pass-through costs of $292.1 million. Overall margin increased approximately 130 basis points from 20.6%12.1% to 21.9%12.9% for fiscal 2014,2017, as compared to fiscal 2013,2016, due to increased operating efficiencies, and the benefits of non-recurring items.as our operating costs related to servicing our clients increased slower than our revenues.
Fiscal 20132016 Compared to Fiscal 20122015
Revenues
DealerPEO Services' revenues as reported increased $144.0 million, or 9%, to $1,820.2 million for16% in fiscal 2013,2016, as compared to fiscal 2012. Revenues2015. Such revenues include pass-through costs of $2,336.3 million for our Dealer Services business would have increased approximately 8% without the impact of acquisitionsfiscal 2016 and $2,015.9 million for fiscal 2015 associated with benefits coverage, workers' compensation coverage, and state unemployment taxes for worksite employees. The increase in revenues was due to a 13% increase in the average number of worksite employees, driven by an increase in the number of new PEO Services clients improved client retention, and growth in our key products during fiscal 2013,existing clients, as compared to fiscal 2012. Revenues increased due to new business started during the year from growthwell as higher client participation and higher benefit pass-through costs in new business bookings and increased users of our digital marketing solutions. We continue to see increased utilization of our credit report and vehicle registration transactions, consistent with the steady improvement of the North American new car market.PEO benefit offerings.
Earnings from Continuing Operations before Income Taxes
Dealer Services'PEO Services’ earnings from continuing operations before income taxes increased $53.2 million, or 17%, to $375.3 million for23% in fiscal 2013,2016, as compared to fiscal 2012. This2015. The increase was due to the increase inincreased revenues of $144.0 million discussed above, andwhich was partially offset by higher operatingan increase in expenses of $356.5 million. This increase in expenses is primarily related to implementing and servicing new clients and products.an increase in pass-through costs of $320.4 million described above. Overall margin increased approximately 140 basis points from 19.2%11.4% to 20.6%12.1% for fiscal 2013,2016, as compared to fiscal 2012,2015, due to increased operating scale and included approximately 10 basis points of margin improvementefficiencies, as our operating costs related to acquisitions completed in fiscal 2012.servicing our clients increased slower than our revenues, and sales efficiencies.
Other
The primary components of “Other” are non-recurring gains and losses, miscellaneous processing services, the “Other” segment areelimination of intercompany transactions, interest expense, the results of operations of ADP Indemnity, non-recurring gains and losses, miscellaneous processing services, such as customer financing transactions, and certain charges and expenses that have not been allocated to the reportable segments, such asand the historical results of the AMD business. Beginning in the first quarter of fiscal 2017, our chief operating decision maker began reviewing the Company's results with stock-based compensation expense,included in the fiscal 2014 separation costs relatedCompany's operating segments. This change, as well as changes to the planned separation of our Dealer Services business,allocation methodology for certain corporate level allocations, has been adjusted in both the current period and the fiscal 2013 goodwill impairment charge.prior period in the table above, and did not materially affect reportable segment results.
Stock-based compensation expense was $138.4 million, $96.4 million, and $94.1 million in fiscal 2014, 2013, and 2012, respectively.
ADP Indemnity provides workers' compensation and employer's liability deductible reimbursement insurance protection for PEO ServicesServices' worksite employees up to a $1 million per occurrence. PEO Services has secured specifica workers’ compensation and employer’s liability insurance policy that has a $1 million per occurrence retention and, in fiscal years 2012 and prior, aggregate stop loss insurance from a wholly-owned and regulated insurance carrier of AIG that covers all losses
in excess of the $1 million per occurrence and also any aggregate losses within the $1 million retention that collectively exceed a certain level, in each policy year.from an admitted and licensed insurance company of AIG. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability for the PEO Services business. Premiums are charged by ADP Indemnity to PEO Services to cover the claims expected to be incurred by the PEO Services' worksite employees. The premiums charged from ADP Indemnity to PEO Services are eliminated in Other. Changes in estimated ultimate incurred losses are recognized by ADP Indemnity.Indemnity and included in Other. For the fiscal years 2013 to 2017, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited, to cover substantially all losses incurred by ADP Indemnity during these policy years. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. We believe the likelihood of ultimate losses exceeding this limit is remote. During fiscal 2014,2017, ADP Indemnity paid a premium of $142.4$221.0 million to enter into a reinsurance arrangement with ACE American Insurance Company to cover substantially all losses incurred by ADP Indemnity for the fiscal 20142017 policy year up to the $1 million per occurrence related to the workers' compensation and employer's liability deductible reimbursement insurance protection for PEO ServicesServices' worksite employees. ADP Indemnity paid a premium of $167.9$235.0 million in July 20142017 to enter into a reinsurance agreement with ACE American Insurance CompanyChubb to cover substantially all losses incurred by ADP Indemnity for the year ended June 30, 2018 ("fiscal 20152018") policy year on terms substantially similar to the fiscal 20142017 reinsurance policy to cover losses 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.
Our net realized gains on the sale of available-for-sale securities, including impairment losses, were $16.5 million, $28.6 million, and $18.6 million in each of fiscal 2014, 2013, and 2012, respectively.policy.
In fiscal 2013 we recorded a goodwill impairment charge of $42.7 million related to our ADP AdvancedMD business which is part of the Employer Services segment. There were no goodwill impairment charges in fiscal 2014 or 2012. In fiscal 2014, we incurred $14.9 million of costs related to our planned separation of our Dealer Services business.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2014,For corporate liquidity, we expect existing cash, andcash equivalents, short-term marketable securities, were $4,069.9 million, stockholders' equity was $6,670.2 million, and the ratio of long-term debt-to-equity was 0.2%. Working capital before funds held for clients and client funds obligations at June 30, 2014 was $1,630.8 million, as compared to $1,209.2 million at June 30, 2013. The increase in working capital was primarily due to a decrease in our obligations under reverse repurchase agreements, an increase in accounts receivables, net, and an increase in cash and cash equivalents. As a result of short-term commercial paper obligations outstanding as of June 30, 2014, we reclassified funds held for clients to short-term marketable securities, and cash flow from operations together with our $9.5 billion of committed credit facilities and cash equivalents, which did not impact our workingability to access both long-term and short-term debt financing from the capital before clients fund obligations at June 30, 2014.markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, and capital expenditures.
In fiscal 2015, as a result of the planned separation of our Dealer Services business,For client funds liquidity, we expect to receive a dividend of at least $700 million, which we plan to return to our shareholders after the spin-off through share repurchases, depending upon market conditions. Additionally, in the first quarter of fiscal 2015, we expect to monetize notes receivables related to our Dealer Services financing arrangements, which is expected to generate between $195 million and $205 million of cash.
Our principal sources of liquidity for operations are derived from cash generated through operations and through corporate cash and marketable securities on hand. We continued to generate positive cash flows from operations during fiscal 2014, and we held approximately $4.1 billion of cash and marketable securities at June 30, 2014, which included $2.2 billion of cash and cash equivalents related to our commercial paper borrowings. We have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S. and Canadian short-term reverse repurchase agreements together with our $9.5 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. Included inPlease see Quantitative and Qualitative Disclosures about Market Risk for a further discussion of the risks of our cash and cash equivalents asclient funds investment strategy. See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper.
As of June 30, 2014 is $0.8 billion held by our foreign subsidiaries. Amounts held by foreign subsidiaries, if repatriated to the U.S., would generally be subject to foreign withholding2017, cash and U.S. income taxes, adjusted for foreign tax credits. Our intent is to permanently reinvest these funds outside of the U.S.short-term marketable securities were $2,783.6 million, which were primarily invested in time deposits and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.money market funds.
Operating, Investing and Financing Cash Flows
Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the years ended 2014, 2013,2017, 2016, and 2012,2015, are summarized as follows:
| | | | | Years ended June 30, | | $ Change | |
| (In millions) | | | Years ended June 30, | | $ Change |
| | | 2014 | | 2013 | | 2012 | | 2014 | | 2013 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 |
| Cash provided by (used in): | | | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 1,821.4 |
| | $ | 1,577.2 |
| | $ | 1,910.2 |
| | $ | 244.2 |
| | $ | (333.0 | ) | | $ | 2,125.9 |
| | $ | 1,897.3 |
| | $ | 1,974.0 |
| | $ | 228.6 |
| | $ | (76.7 | ) |
| Investing activities | | 813.3 |
| | (1,578.4 | ) | | 3,243.6 |
| | 2,391.7 |
| | (4,822.0 | ) | | 5,730.4 |
| | (9,087.2 | ) | | (3,760.3 | ) | | 14,817.6 |
| | (5,326.9 | ) |
| Financing activities | | (2,358.2 | ) | | 151.0 |
| | (4,953.9 | ) | | (2,509.2 | ) | | 5,104.9 |
| | (8,281.7 | ) | | 8,752.7 |
| | 1,548.3 |
| | (17,034.4 | ) | | 7,204.4 |
|
| Effect of exchange rate changes on cash and cash equivalents | | 8.0 |
| | 1.2 |
| | (41.2 | ) | | 6.8 |
| | 42.4 |
| | 14.7 |
| | (11.0 | ) | | (106.3 | ) | | 25.7 |
| | 95.3 |
|
| Net change in cash and cash equivalents | | $ | 284.5 |
| | $ | 151.0 |
| | $ | 158.7 |
| | $ | 133.5 |
| | $ | (7.7 | ) | | $ | (410.7 | ) | | $ | 1,551.8 |
| | $ | (344.3 | ) | | $ | (1,962.5 | ) | | $ | 1,896.1 |
|
Fiscal 2017 Compared to Fiscal 2016
Net cash flows provided by operating activities increased due to growth in our business and favorable changes in our working capital, which was due to the timing of payments from our clients and to our vendors in the ordinary course of business.
Net cash flows provided by operating activities were $1,821.4 million for fiscal 2014, as compared to $1,577.2 million for fiscal 2013. The increase in net cash flows provided by operating activities was due to $110.1 million higher net earnings in fiscal 2014, a lower pension contribution of $50.6 million, and a favorable change in the remaining components of net working capital. For the year ended June 30, 2014, Other operating activities include a $49.9 million use of funds and financing activities include a $49.9 million source of funds for excess tax benefits related to stock-based compensation. For the year ended June 30, 2013, Other operating activities include a $16.2 million use of funds and financing activities include a $16.2 million source of funds for excess tax benefits related to stock-based compensation.
Net cash flows provided byfrom investing activities were $813.3 million for fiscal 2014, as compared to net cash flows used in investing activities of $1,578.4 million for fiscal 2013. The net change in cash provided by investing activities ischanged due to the timing of receipts and disbursements of restricted cash and cash equivalents held to satisfy client funds obligations of $2,698.815,061.8 million and a decrease in, as well as the timing of purchases of corporate and client funds marketable securities of $1,487.7 million,$1,493.5 million. These increases were partially offset by the a decrease in the proceeds from the sales and maturities of corporate and clients fundsclient fund marketable securities of $1,579.1$1,621.8 million.
Net cash flows used infrom financing activities were $2,358.2 million for fiscal 2014 as compared to net cash flows provided by financing activities of $151.0 million for fiscal 2013. The net change in cash provided by financing activities ischanged due to the net decrease in client funds obligations of $4,128.0$14,923.9 million, as a result of the timing of cash received and payments made related to client funds, and the timing of our borrowings and repayments of our reverse repurchase obligations, partially offset by the net increase in proceeds from commercial paper borrowings of $2,173.0 million.our $2.0 billion September 2015 debt issuance.
We purchased approximately 9.013.5 million shares of our common stock at an average price per share of $75.06$94.42 during fiscal 20142017 as compared to purchases of 10.413.8 million shares at an average price per share of $61.8982.88 during fiscal 2013.2016. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. 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.
Fiscal 2016 Compared to Fiscal 2015
Net cash flows provided by operating activities decreased due to $226.7 million received from the sale of notes receivable related to Dealer Services financing arrangements during fiscal 2015.
Net cash flows used in investing activities increased due to the timing of receipts and disbursements of restricted cash and cash equivalents held to satisfy client funds obligations of $5,257.6 million and the receipt of the CDK Global, Inc. ("CDK") dividend during fiscal 2015, partially offset by the timing of purchases of and proceeds from corporate and client funds marketable securities of $545.7 million.
Net cash flows provided by financing activities increased due to the net increase in client funds obligations of $2,728.9 million, as a result of the timing of cash received and payments made related to client funds, proceeds from our $2.0 billion September 2015 debt issuance, a decrease in our repurchases of common stock, and the timing of borrowings and repayments of commercial paper. We purchased approximately 13.8 million shares of our common stock at an average price per share of $82.88 during fiscal 2016 as compared to purchases of 18.2 million shares at an average price per share of $85.28 during fiscal 2015. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. 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
In September 2015, we issued $2.0 billion of senior unsecured notes with maturity dates in 2020 and 2025. We may from time to time revisit the long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all. See Note 10 of our Consolidated Financial Statements for a description of our long-term financing, including this fiscal 2016 debt issuance.
Our U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through a short-term commercial paper program, which provides for the issuance of up to $7.25 billion in aggregate maturity value of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. In July 2014, we increased our U.S. short-termDuring the majority of fiscal 2017, this commercial paper program to provideprovided for the issuance of up to $7.5$9.25 billion in aggregate maturity value.value and in June 2017, we increased our commercial paper program to $9.5 billion. Our commercial paper program is rated A-1+ by Standard and Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. ForIn fiscal 20142017 and 2013,2016, our average daily borrowings were $2.3$3.1 billion and $2.4$2.7 billion,, respectively, at a weighted average interest rate of 0.1%0.6% and 0.2%0.3%, respectively. The weighted average maturity of the Company’s commercial paper
during fiscal 2014 approximated 2017 was approximately two days. We have successfully borrowed through the use of our commercial paper program on an as needed basis to meet short-term funding requirements related to client funds obligations.days. At June 30, 2014,2017 and 2016, we had $2.2 billion of commercial paper outstanding, which was subsequently repaid on July 1, 2014. At June 30, 2013, we had no outstanding obligations under our short-term commercial paper program.
Our U.S. and Canadian 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, 2014,2017 and 2016, there were no outstanding obligations related to the reverse repurchase agreements. At June 30, 2013, we had $245.9 million of obligations outstanding related to reverse repurchase agreements, which were repaid on July 2, 2013. For fiscal 20142017 and 2013,2016, we had average outstanding balances under reverse repurchase agreements of $361.7$274.8 million and $362.0$341.0 million,, respectively, at weighted average interest rates of 0.5%0.6% and 0.7%0.4%, respectively. In addition, we have $3.25 billion available to us on a committed basis under theseSee Note 9 of our Consolidated Financial Statements for client fund investments used as collateral for reverse repurchase agreements. We believe that we currently meet all conditions set forth in the committed reverse repurchase agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the $3.25 billion available to us under the committed reverse repurchase agreements.
We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $2.25$3.5 billion,, 364-day credit agreement with a group of lenders that matures in June 2015.2018 with a one year term-out option. In addition, we have a five-year $2.03.75 billion credit facility and a five-year $3.252.25 billion credit facility maturing in June 20182021 and June 20192022, respectively, each with an accordion feature under which the aggregate commitment can be increased by $500.0500 million, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the effective federal funds rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. We had no borrowings through June 30, 20142017 under the credit agreements. 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 $7.5$9.5 billion available to us under the revolving credit agreements. See Note 6 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 subprimesub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, asset-backed commercial paper, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA rated senior tranches of fixed rate credit card, auto loan, equipment lease, and rate reduction, and other asset-backed securities, secured predominately by prime collateral. All collateral on asset-backed securities is performing as expected. In addition, we own senior debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks. We do own mortgage-backed securities, which represent an undivided beneficial ownership interest in a group or pool of one or more residential mortgages. These securities are collateralized by the cash flows of 15-year and 30-year residential mortgages and are guaranteed primarily by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation as to the timely payment of principal and interest. 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 6 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.
Capital expenditures for continuing operations infor fiscal 20142017 were $218.7$249.1 million, as compared to $174.8$165.7 million infor fiscal 2013 and $146.2 million in fiscal 2012. The capital expenditures in fiscal 2014 related to our data center and other facility improvements made to support our operations.2016. We expect capital expenditures in fiscal 20152018 to be between $250 million and $275about $200 million.
Contractual Obligations
The following table provides a summary of our contractual obligations as ofat June 30, 2014:2017:
| | | (In millions) | | Payments due by period | | Payments due by period |
| Contractual Obligations | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Unknown | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Unknown | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations (1) | | $ | 2.3 |
| | $ | 5.1 |
| | $ | 6.9 |
| | $ | — |
| | $ | — |
| | $ | 14.3 |
| | $ | 63.6 |
| | $ | 116.8 |
| | $ | 1,081.5 |
| | $ | 1,124.1 |
| | $ | — |
| | $ | 2,386.0 |
|
Operating Lease and Software License Obligations (2) | | $ | 209.9 |
| | $ | 235.2 |
| | $ | 83.0 |
| | $ | 32.6 |
| | $ | — |
| | $ | 560.7 |
| |
| Operating Lease Obligations (2) | | | $ | 105.4 |
| | $ | 170.7 |
| | $ | 87.1 |
| | $ | 110.5 |
| | $ | — |
| | $ | 473.7 |
|
| Purchase Obligations (3) | | $ | 379.7 |
| | $ | 268.4 |
| | $ | 132.3 |
| | $ | — |
| | $ | — |
| | $ | 780.4 |
| | $ | 368.7 |
| | $ | 225.5 |
| | $ | 50.5 |
| | $ | 0.2 |
| | $ | — |
| | $ | 644.9 |
|
Obligations related to Unrecognized Tax Benefits (4) | | $ | 1.0 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 55.7 |
| | $ | 56.7 |
| |
Other long-term liabilities reflected on our Consolidated Balance Sheets: | | | | | | | | | | | | | |
Obligations Related to Unrecognized Tax Benefits (4) | | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 74.6 |
| | $ | 74.6 |
|
Other Long-Term Liabilities Reflected on our Consolidated Balance Sheets: | | | | | | | | | | | | | |
| Compensation and Benefits (5) | | $ | 5.4 |
| | $ | 191.6 |
| | $ | 100.4 |
| | $ | 265.0 |
| | $ | 80.0 |
| | $ | 642.4 |
| | $ | 3.8 |
| | $ | 250.1 |
| | $ | 123.1 |
| | $ | 273.0 |
| | $ | 93.7 |
| | $ | 743.7 |
|
| Acquisition-related obligations (6) | | $ | 0.3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 0.3 |
| | $ | 2.6 |
| | $ | 8.1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10.7 |
|
| Total | | $ | 598.6 |
| | $ | 700.3 |
| | $ | 322.6 |
| | $ | 297.6 |
| | $ | 135.7 |
| | $ | 2,054.8 |
| | $ | 544.1 |
| | $ | 771.2 |
| | $ | 1,342.2 |
| | $ | 1,507.8 |
| | $ | 168.3 |
| | $ | 4,333.6 |
|
| |
| (1) | These amounts represent the principal repaymentsand interest payments of our debt andare included on our Consolidated Balance Sheets. The estimated interest payments due by the corresponding period above are $0.5 million, $0.6 million, $0.1 million, and $0.0 million, respectively, which have been excluded. debt. |
| |
| (2) | Included in these amounts are various facilities and equipment leases and software license agreements.leases. We enter into operating leases in the normal course of business relating to facilities and equipment, as well as the licensing of software.equipment. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts or if we enter into additional operating lease agreements. |
| |
| (3) | Purchase obligations are comprised of a $167.9$235.0 million reinsurance premium with ACE American Insurance CompanyChubb for the fiscal 20152018 policy year, as well as obligations related to software subscription licenses and purchase and maintenance agreements on our software, equipment, and other assets. |
| |
| (4) | We made the determination that net cash payments expected to be paid within the next 12 months, related to unrecognized tax benefits of $56.7 million at June 30, 2014, are expected to be up to $1 million. We are unable to make reasonably reliable estimates as to the period beyond the next 12 months in which cash payments related to unrecognized tax benefits are expected to be paid. |
| |
| (5) | Compensation and benefits primarily relates to amounts associated with our employee benefit plans and other compensation arrangements. These amounts exclude the estimated contributions to our defined benefit plans, which are expected to be $9.5 million in fiscal 2015. 2018. |
| |
| (6) | Acquisition-related obligations relate to deferred purchasecontingent consideration payments at future dates. A liability is establishedfor a business acquisition for which the amount of contingent consideration was determinable at the timedate of acquisition and therefore included on the acquisition for these fixed payments.Consolidated Balance Sheet as a liability. |
In addition to the obligations quantified in the table above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services. As of June 30, 2014,2017, the obligations relating to these matters, which are expected to be paid in fiscal 2015,2018, total $18,963.427,189.4 million and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $19,258.027,291.5 million of cash and cash equivalents and marketable securities that have beenwere impounded from our clients to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2014.2017.
ADP Indemnity provides workers' compensation and employer's liability deductible reimbursement insurance protection for PEO Services worksite employees up to a $1 million per occurrence. PEO Services has secured specific per occurrence and aggregate stop loss insurance from a wholly-owned and regulated insurance carrier of AIG that covers all losses in excess of the $1 million per occurrence and also any aggregate losses within the $1 million retention that collectively exceed a certain level in certain policy years. Should AIG and its wholly-owned insurance company be unable to satisfy their contractual obligations, ADP would also become responsible for satisfying these worksite employee workers' compensation obligations for these claims in excess of the $1 million per occurrence. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability for the PEO Services business. Premiums are charged to PEO Services to cover the claims expected to be incurred by the PEO Services' worksite employees. Changes in estimated ultimate incurred losses are recognized by ADP Indemnity. During fiscal 2014,Separately, ADP Indemnity paid a premium of $142.4$235.0 million in July 2017 to enter into a reinsurance agreement with ACE American Insurance CompanyChubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2014 policy year up to the $1 million per occurrence related to the workers' compensation and employers' liability deductible reimbursement insurance protection for PEO Services worksite employees. ADP Indemnity paid a premium of $167.9 million in July 2014 to enter into a reinsurance agreement with ACE American Insurance Company to cover substantially all losses for the fiscal 20152018 policy year on terms substantially similar to the fiscal 20142017 reinsurance policy. At June 30, 2014,2017, ADP Indemnity'sIndemnity had total assets were $378.4of $533.9 million to satisfy the actuarially estimated unpaid losses of $318.8$459.7 million for the policy years since July 1, 2003. ADP Indemnity paid claims of $45.3$10.7 million and $59.5$14.0 million, net of insurance recoveries, in fiscal 20142017 and 2013,2016, respectively. Refer to the "Analysis of Reportable Segments - Other" 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 marketable securities, and long-term marketable securities) and client funds assets (funds that have been collected from clients but not yet remitted to the applicable tax authorities or client employees).
Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities. These assets are available for repurchases of common stock for treasury and/or acquisitions, as well as other corporate operating purposes. All of our short-term and long-term fixed-income securities are classified as available-for-sale securities.
Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Client funds assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents. At June 30, 2014, approximately 92% of the available-for-sale securities categorized as U.S. Treasury and direct obligations of U.S. government agencies were invested in senior, unsecured, non-callable debt directly issued by the Federal Home Loan Banks and Federal Farm Credit Banks.
We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). As part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. We minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by impounding, in virtually all instances, the client’s funds in advance of the timing of payment of such client’s obligation. As a result of this practice, we have consistently maintained the required level of client funds assets to satisfy all of our obligations.
There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets. Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our client funds obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our $7.5$9.5 billion commercial paper program (rated A-1+ by Standard and Poor’s and Prime-1 (P1)("P-1") by Moody’s, the highest possible credit ratings), our ability to executeengage in reverse repurchase transactions ($3.25 billion of which is available on a committed basis),agreements and available borrowings under our $7.5$9.5 billion committed revolving 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 and Canadian provincial bonds is BBB, for asset-backed securities is AAA, and for municipal bonds is A. The maximum maturity at time of purchase for BBB rated securities is 5 years, for single A rated securities is 7 years, and for AA rated and AAA rated securities is 10 years. Time deposits and commercial paper must be rated A-1 and/or P-1. Money market funds must be rated AAA/Aaa-mf.
Details regarding our overall investment portfolio are as follows:
| | | (Dollars in millions) | | | | | | | |
| (In millions) | | | | | | | |
| Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| Average investment balances at cost: | | | | | | | | | | | | |
| Corporate investments | | $ | 4,072.4 |
| | $ | 4,200.3 |
| | $ | 4,024.6 |
| | $ | 6,143.3 |
| | $ | 5,610.1 |
| | $ | 4,560.4 |
|
| Funds held for clients | | 20,726.5 |
| | 19,156.3 |
| | 17,898.2 |
| | 23,023.5 |
| | 22,418.7 |
| | 21,798.4 |
|
| Total | | $ | 24,798.9 |
| | $ | 23,356.6 |
| | $ | 21,922.8 |
| | $ | 29,166.8 |
| | $ | 28,028.8 |
| | $ | 26,358.8 |
|
| | | |
| | |
| | | | |
| | |
| | |
Average interest rates earned exclusive of realized gains/(losses) on: | | |
| | |
| | | |
Average interest rates earned exclusive of realized (gains)/losses on: | | | |
| | |
| | |
| Corporate investments | | 1.4 | % | | 1.5 | % | | 2.1 | % | | 1.2 | % | | 1.1 | % | | 1.3 | % |
| Funds held for clients | | 1.8 | % | | 2.2 | % | | 2.8 | % | | 1.7 | % | | 1.7 | % | | 1.7 | % |
| Total | | 1.7 | % | | 2.1 | % | | 2.6 | % | | 1.6 | % | | 1.6 | % | | 1.7 | % |
| | | | | | | | | | | | | |
| Realized gains on available-for-sale securities | | $ | 20.4 |
| | $ | 32.1 |
| | $ | 32.1 |
| | $ | (5.3 | ) | | $ | (5.1 | ) | | $ | (6.8 | ) |
| Realized losses on available-for-sale securities | | (3.9 | ) | | (3.5 | ) | | (7.7 | ) | | 3.1 |
| | 10.1 |
| | 1.9 |
|
| Net realized gains on available-for-sale securities | | $ | 16.5 |
| | $ | 28.6 |
| | $ | 24.4 |
| |
| | | | | | | | |
| Impairment losses on available-for-sale securities | | $ | — |
| | $ | — |
| | $ | (5.8 | ) | |
| Net realized (gains)/losses on available-for-sale securities | | | $ | (2.2 | ) | | $ | 5.0 |
| | $ | (4.9 | ) |
| | | As of June 30: | | | | | | | | | | | | |
| | | |
| | |
| | | | |
| | |
| | |
Net unrealized pre-tax gains on available-for-sale securities | | $ | 324.4 |
| | $ | 287.4 |
| | $ | 710.5 |
| | $ | 102.5 |
| | $ | 510.2 |
| | $ | 216.5 |
|
| | | | | | | | | | | | | |
| Total available-for-sale securities at fair value | | $ | 20,156.5 |
| | $ | 18,838.7 |
| | $ | 18,093.4 |
| | $ | 21,901.1 |
| | $ | 21,605.0 |
| | $ | 20,873.8 |
|
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annualized interest rate earned on our entire portfolio decreased from 2.1%increased slightly to 1.6% for fiscal 20132017, as compared to 1.7% for fiscal 2014.2016. A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $10$11 million impact to earnings from continuing operations before income taxes over the ensuing twelve-month period ending June 30,2015. 2018. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately a $5$6 million impact to earnings from continuing operations before income taxes over the ensuing twelve-month period ending June 30,2015. 2018.
We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade securities, primarily AAA and AA rated securities, as rated by Moody’s, Standard & Poor’s, and for Canadian securities, Dominion Bond Rating Service.DBRS. Approximately 82%79% of our available-for-sale securities held a AAA or AA rating at June 30, 2014.2017. In addition, we limit amounts that can be invested in any security other than U.S. and Canadian government or government agency securities.
We operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in foreign currency exchange rates that could impact our consolidated results of operations, financial position, or cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We may use derivative financial instruments as risk management tools and not for trading purposes. We had no derivative financial instruments outstanding at June 30, 2017 or 2016.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014,See Note 1, New Accounting Pronouncements, of Notes to the Consolidated Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 requires an entity to recognize revenue depicting the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will also result in enhanced revenue related disclosures. ASU 2014-09 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016. We have not yet determined the impact of ASU 2014-09 on our consolidated results of operations, financial condition, or cash flows.
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. The impact of ASU 2014-08 is dependent upon the nature of dispositions, if any, after adoption.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 requires netting of unrecognized tax benefits against a deferred tax assetStatements for a loss or other carryforward that would apply in settlementdiscussion of the uncertain tax position. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective adoption is permitted. The adoption of ASU 2013-11 will not have a material impact on our consolidated results of operations, financial condition, or cash flows.
In July 2013, we adopted ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires entities to disclose the amount of income (loss) reclassified out of accumulated other comprehensive income to each respective line item on the income statement. The guidance allows companies to elect whether to disclose the reclassification either on the face of the income statement or in the notes to the financial statements, including cross-referencing other disclosures which provide additional details about these amounts. We have elected to disclose the reclassification in the notes to the financial statements with cross-references to other disclosures which provide additional details about the amounts. The adoption of ASU 2013-02 did not have an impact on our consolidated results of operations, financial condition, or cash flows. recent accounting pronouncements.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statementsConsolidated Financial Statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America.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, and expenses. We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements.Consolidated Financial Statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below.
Revenue RecognitionRecognition.. Ourrevenues are primarily attributable to fees for providing services (e.g.,, Employer Services' and PEO Services' payroll processing fees) as well as, investment income on payroll funds, payroll tax filing funds and other Employer Services' client-related funds. PEO revenues are reported net of direct pass-through costs, which are costs billedfunds, and incurred for PEO Services' worksite employees, primarily consisting of payroll wages and payroll taxes. Benefits, workers' compensation and state unemployment tax fees for worksite employees are included in PEO revenues andcharged to implement clients on the associated costs are included in operating expenses.Company's solutions. We enter into agreements for a fixed fee per transaction (e.g.,, number of payees or number of payrolls processed). Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Our
PEO 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 is not the primary obligor with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is the primary obligor, has latitude in establishing price, selects suppliers, and determines the service specifications.
The fees collected from the worksite employers for benefits, workers’ compensation and state unemployment taxes are determined based on writtenpresented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company acts as a principal with respect to this aspect of the arrangement. With respect to the fees for benefits, workers’ compensation and state unemployment taxes, the Company is the primary obligor, has latitude in establishing price, quotations orselects suppliers, determines the service agreements having stipulated termsspecifications and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties. Interestis liable for credit risk.
We recognize interest income on collected but not yet remitted funds held for clients is recognized in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.
We also recognize revenues associated withClient implementation fees are charged to set clients up on our solutions and are deferred until the sale of software systemsclient has gone live and associated software licenses (e.g., Dealer Services' dealer management systems). For a majority of our software sales arrangements, which provide hardware, software licenses, installation, and post-contract customer support, revenuesservices have begun. These fees are recognized ratablyamortized to revenue over the software license term, as vendor-specific objective evidencelonger of the fair valuescontractual term or expected client life, including estimated renewals of the individual elements in the sales arrangement does not exist. Changes to the elements in an arrangement and the ability to establish vendor-specific objective evidence for those elements could affect the timing of the revenue recognition.client contracts.
We assess the collectability of our revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer's payment history. We do not believe that a change in our assumptions utilized in the collectability determination would result in a material change to revenues as no single customer accounts for a significant portion of our revenues.
Goodwill. We account for goodwill in accordance with ASC 350-10,Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other," which statesrequires that goodwill should not be amortized, but instead tested for impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable. WeAccording to ASC 350, we can opt to perform thisa qualitative assessment to test a reporting unit’s goodwill for impairment test by first comparingor can directly perform the two-step impairment test. Based on a qualitative assessment, if it is determined that the fair value of each reporting unit to its carrying amount. If the carrying value for a reporting unit exceedsis more likely than not less than its fair value, we then compare the implied fair value of our goodwill to the carrying amount, the two-step impairment test prescribed by ASC 350 would be performed.
Our annual goodwill impairment assessment as of June 30, 2017 was performed using a qualitative approach. The qualitative assessment considered industry and market considerations for any deterioration in orderthe environment in which we operate, the competitive environment, a decline (both absolute and relative to determinepeers) in market-dependent multiples or metrics, any changes in the amount of themarket for our services, and regulatory and political development. Additionally, we assessed financial
performance by reporting unit and considered cost factors, such as labor or other costs, that would have a negative effect on results. The annual goodwill impairment if any. We determineassessments performed for fiscal 2017 have indicated that it is more likely than not that the fair value of our reporting units using an equal weighted blended approach, which combines the income approach, which is the present valuesubstantially in excess of expected cash flows, discounted at a risk-adjusted weighted-average cost of capital; and the market approach, which is based on 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. We had $3,113.8 million of goodwill as of June 30, 2014. Based on the fair value analysis completed in the fourth quarter of 2014, management concluded that fair value exceeded carrying value for all reporting units and that no reporting units werenot at risk of failing step one of the quantitative goodwill impairment. In completingimpairment test. Based on our qualitative assessment, the annual impairment test for fiscal 2014, we evaluated the reasonableness of differences noted between the fair value and carrying value of each reporting unit. Given the significance of ourCompany has determined that goodwill an adverse change to the fair value of goodwill and intangible assets could result in an impairment charge which could be material to our consolidated earnings if we are unable to generate the anticipated revenue growth, synergies and/or cost savings associated with our acquisitions. During the fourth quarter of fiscal 2013, there was an impairment charge of $42.7 million for the ADP AdvancedMD reporting unit.is not impaired.
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 statementsConsolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). In addition, we are subject to the continuous examination of our income tax returns by the IRSInternal Revenue Service ("IRS") and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements.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 those 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. A change in the assessment of the “more likely than not” standard could materially impact our consolidated financial statements.Consolidated Financial Statements. As of June 30, 20142017 and 2013,2016, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $56.7$74.6 million and $70.7$27.4 million,, respectively.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, favorable settlements related to various jurisdictions and tax periods could increase earnings up to $10$35 million in the next twelve months. 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.
Stock-Based Compensation.Compensation. We measure stock-based compensation expense based on the fair value of the award on the date of grant. We determine the fair value of stock options issued by using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee
exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of our stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grants is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. Determining these assumptions is subjective and complex, and, therefore, a change in the assumptions utilized could impact the calculation of the fair value of our stock options.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption "Quantitative“Quantitative and Qualitative Disclosures About Market Risk"Risk” under "Item“Item 7 - Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operation.”
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
We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc. and subsidiaries (the "Company") as of June 30, 20142017 and 2013,2016, and the related consolidated statements of consolidated earnings,income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2014.2017. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(a) 2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and consolidated financial statement scheduleschedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Automatic Data Processing, Inc. and subsidiaries as of June 30, 20142017 and 2013,2016, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2014,2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the consolidatedsuch financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presentspresent fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, 2014,2017, based on the criteria established in Internal Control-IntegratedControl - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 8, 20144, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.
|
|
| /s/ Deloitte & Touche LLP |
Parsippany, New Jersey
August 8, 20144, 2017
Statements of Consolidated Earnings
(In millions, except per share amounts)
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | |
| REVENUES: | | | | | | | | | | | | |
Revenues, other than interest on funds held for clients and PEO revenues | | $ | 9,575.2 |
| | $ | 8,906.0 |
| | $ | 8,341.9 |
| | $ | 8,518.1 |
| | $ | 8,234.0 |
| | $ | 7,928.3 |
|
| Interest on funds held for clients | | 373.7 |
| | 420.9 |
| | 493.3 |
| | 397.4 |
| | 377.3 |
| | 377.7 |
|
| PEO revenues (A) | | 2,257.6 |
| | 1,960.7 |
| | 1,760.2 |
| | 3,464.3 |
| | 3,056.5 |
| | 2,632.5 |
|
| TOTAL REVENUES | | 12,206.5 |
| | 11,287.6 |
| | 10,595.4 |
| | 12,379.8 |
| | 11,667.8 |
| | 10,938.5 |
|
| | | | | | | | | | | | | |
| EXPENSES: | | |
| | |
| | | | |
| | |
| | |
| Costs of revenues: | | |
| | |
| | | | |
| | |
| | |
| Operating expenses | | 6,248.6 |
| | 5,731.5 |
| | 5,355.2 |
| | 6,416.1 |
| | 6,025.0 |
| | 5,625.3 |
|
| Systems development and programming costs | | 718.0 |
| | 654.3 |
| | 592.7 |
| | 627.5 |
| | 603.7 |
| | 595.4 |
|
| Depreciation and amortization | | 254.8 |
| | 252.7 |
| | 256.0 |
| | 226.2 |
| | 211.6 |
| | 206.9 |
|
| TOTAL COSTS OF REVENUES | | 7,221.4 |
| | 6,638.5 |
| | 6,203.9 |
| | 7,269.8 |
| | 6,840.3 |
| | 6,427.6 |
|
| | | | | | | | | | | | | |
| Selling, general, and administrative expenses | | 2,762.4 |
| | 2,617.4 |
| | 2,452.9 |
| | 2,783.2 |
| | 2,637.0 |
| | 2,496.9 |
|
| Separation costs | | 14.9 |
| | — |
| | — |
| |
| Goodwill impairment | | — |
| | 42.7 |
| | — |
| |
| Interest expense | | 6.1 |
| | 9.1 |
| | 7.7 |
| | 80.0 |
| | 56.2 |
| | 6.5 |
|
| TOTAL EXPENSES | | 10,004.8 |
| | 9,307.7 |
| | 8,664.5 |
| | 10,133.0 |
| | 9,533.5 |
| | 8,931.0 |
|
| | | | | | | | | | | | | |
| Other income, net | | (72.9 | ) | | (96.2 | ) | | (170.8 | ) | | (284.3 | ) | | (100.4 | ) | | (63.2 | ) |
| | | | | | | | | | | | | |
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | 2,274.6 |
| | 2,076.1 |
| | 2,101.7 |
| | 2,531.1 |
| | 2,234.7 |
| | 2,070.7 |
|
| | | | | | | | | | | | | |
| Provision for income taxes | | 772.0 |
| | 718.0 |
| | 726.5 |
| | 797.7 |
| | 741.3 |
| | 694.2 |
|
| NET EARNINGS FROM CONTINUING OPERATIONS | | $ | 1,502.6 |
| | $ | 1,358.1 |
| | $ | 1,375.2 |
| | $ | 1,733.4 |
| | $ | 1,493.4 |
| | $ | 1,376.5 |
|
| | | | | | | | | | | | | |
| EARNINGS FROM DISCONTINUED OPERATIONS BEFORE INCOME TAXES | | 19.5 |
| | 75.0 |
| | 20.4 |
| |
| Provision for income taxes | | 6.2 |
| | 27.3 |
| | 7.1 |
| |
| NET EARNINGS FROM DISCONTINUED OPERATIONS | | $ | 13.3 |
| | $ | 47.7 |
| | $ | 13.3 |
| |
| (LOSSES)/EARNINGS FROM DISCONTINUED OPERATIONS BEFORE INCOME TAXES | | | — |
| | (1.4 | ) | | 171.5 |
|
| (Benefit)/provision for income taxes | | | — |
| | (0.5 | ) | | 95.5 |
|
| NET (LOSS)/EARNINGS FROM DISCONTINUED OPERATIONS | | | $ | — |
| | $ | (0.9 | ) | | $ | 76.0 |
|
| | | | | | | | | | | | | |
| NET EARNINGS | | $ | 1,515.9 |
| | $ | 1,405.8 |
| | $ | 1,388.5 |
| | $ | 1,733.4 |
| | $ | 1,492.5 |
| | $ | 1,452.5 |
|
| | | | | | | | | | | | | |
| Basic Earnings Per Share from Continuing Operations | | $ | 3.14 |
| | $ | 2.81 |
| | $ | 2.82 |
| | $ | 3.87 |
| | $ | 3.27 |
| | $ | 2.91 |
|
| Basic Earnings Per Share from Discontinued Operations | | 0.03 |
| | 0.10 |
| | 0.03 |
| | — |
| | — |
| | 0.16 |
|
| BASIC EARNINGS PER SHARE | | $ | 3.17 |
| | $ | 2.91 |
| | $ | 2.85 |
| | $ | 3.87 |
| | $ | 3.27 |
| | $ | 3.07 |
|
| | | | | | | | | | | | | |
| Diluted Earnings Per Share from Continuing Operations | | $ | 3.11 |
| | $ | 2.79 |
| | $ | 2.79 |
| | $ | 3.85 |
| | $ | 3.25 |
| | $ | 2.89 |
|
| Diluted Earnings Per Share from Discontinued Operations | | 0.03 |
| | 0.10 |
| | 0.03 |
| | — |
| | — |
| | 0.16 |
|
| DILUTED EARNINGS PER SHARE | | $ | 3.14 |
| | $ | 2.89 |
| | $ | 2.82 |
| | $ | 3.85 |
| | $ | 3.25 |
| | $ | 3.05 |
|
| | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | 478.9 |
| | 482.7 |
| | 487.3 |
| | 447.8 |
| | 457.0 |
| | 472.6 |
|
| Diluted weighted average shares outstanding | | 483.1 |
| | 487.1 |
| | 492.2 |
| | 450.3 |
| | 459.1 |
| | 475.8 |
|
(A) For the years ended June 30, 2017 ("fiscal 2017"), June 30, 2016 ("fiscal 2016"), and June 30,2015 ("fiscal 2015"), Professional Employer Organization (“PEO”("PEO") revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $23,192.234,567.4 million, $19,956.230,928.6 million, and $17,792.226,674.1 million, respectively.
See notes to the consolidated financial statements.Consolidated Financial Statements.
Statements of Consolidated Comprehensive Income
(In millions)
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | |
| Net earnings | | $ | 1,515.9 |
| | $ | 1,405.8 |
| | $ | 1,388.5 |
| | $ | 1,733.4 |
| | $ | 1,492.5 |
| | $ | 1,452.5 |
|
| | | | | | | | | | | | | |
| Other comprehensive income: | | | | | | | | | | | | |
| Currency translation adjustments | | 59.9 |
| | (2.4 | ) | | (141.1 | ) | | 23.0 |
| | (25.5 | ) | | (239.6 | ) |
| | | | | | | | | | | | | |
| Unrealized net gains/(losses) on available-for-sale securities | | 53.5 |
| | (394.6 | ) | | 158.1 |
| |
| Unrealized net (losses)/gains on available-for-sale securities | | | (405.7 | ) | | 288.8 |
| | (103.0 | ) |
| Tax effect | | (18.2 | ) | | 138.5 |
| | (54.4 | ) | | 141.6 |
| | (102.2 | ) | | 38.6 |
|
| Reclassification of net gains on available-for-sale securities to net earnings | | (16.5 | ) | | (28.6 | ) | | (18.6 | ) | |
| Reclassification of net (gains)/losses on available-for-sale securities to net earnings | | | (2.2 | ) | | 5.0 |
| | (4.9 | ) |
| Tax effect | | 6.1 |
| | 10.1 |
| | 6.4 |
| | 0.8 |
| | (1.7 | ) | | 1.6 |
|
| | | | | | | | | | | | | |
| Pension net gains/(losses) arising during the period | | 102.8 |
| | 68.2 |
| | (149.7 | ) | | 109.6 |
| | (199.4 | ) | | (87.4 | ) |
| Tax effect | | (39.7 | ) | | (25.7 | ) | | 52.3 |
| | (43.6 | ) | | 72.9 |
| | 32.7 |
|
| Reclassification of pension liability adjustment to net earnings | | 20.7 |
| | 31.7 |
| | 15.5 |
| | 20.6 |
| | 12.0 |
| | 17.9 |
|
| Tax effect | | (5.8 | ) | | (12.0 | ) | | (5.4 | ) | | (8.2 | ) | | (4.4 | ) | | (6.5 | ) |
| | | | | | | | | | | | | |
| Other comprehensive income/(loss), net of tax | | 162.8 |
| | (214.8 | ) | | (136.9 | ) | |
| Other comprehensive (loss)/income, net of tax | | | (164.1 | ) | | 45.5 |
| | (350.6 | ) |
| Comprehensive income | | $ | 1,678.7 |
| | $ | 1,191.0 |
| | $ | 1,251.6 |
| | $ | 1,569.3 |
| | $ | 1,538.0 |
| | $ | 1,101.9 |
|
See notes to the consolidated financial statements.Consolidated Financial Statements.
Consolidated Balance Sheets
(In millions, except per share amounts)
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents (A) (B) | | $ | 1,983.6 |
| | $ | 1,699.1 |
| |
| Short-term marketable securities (B) | | 2,032.2 |
| | 28.0 |
| |
| Accounts receivable, net | | 1,800.4 |
| | 1,595.3 |
| |
| Cash and cash equivalents | | | $ | 2,780.4 |
| | $ | 3,191.1 |
|
| Accounts receivable, net of allowance for doubtful accounts of $49.6 and $38.1, respectively | | | 1,703.6 |
| | 1,742.8 |
|
| Other current assets | | 759.2 |
| | 646.6 |
| | 883.2 |
| | 725.3 |
|
| Assets of discontinued operations | | — |
| | 16.7 |
| |
| Total current assets before funds held for clients | | 6,575.4 |
| | 3,985.7 |
| | 5,367.2 |
| | 5,659.2 |
|
| Funds held for clients | | 19,258.0 |
| | 22,228.8 |
| | 27,291.5 |
| | 33,841.2 |
|
| Total current assets | | 25,833.4 |
| | 26,214.5 |
| | 32,658.7 |
| | 39,500.4 |
|
| Long-term marketable securities (A) | | 54.1 |
| | 314.0 |
| |
| Long-term receivables, net | | 155.4 |
| | 138.7 |
| |
| Long-term receivables, net of allowance for doubtful accounts of $0.8 and $0.5, respectively | | | 28.0 |
| | 27.1 |
|
| Property, plant and equipment, net | | 777.4 |
| | 728.6 |
| | 779.9 |
| | 685.0 |
|
| Other assets | | 1,485.3 |
| | 1,189.9 |
| | 1,352.2 |
| | 1,241.3 |
|
| Goodwill | | 3,113.8 |
| | 3,039.2 |
| | 1,741.0 |
| | 1,682.0 |
|
| Intangible assets, net | | 632.3 |
| | 643.2 |
| | 620.2 |
| | 534.2 |
|
| Total assets | | $ | 32,051.7 |
| | $ | 32,268.1 |
| | $ | 37,180.0 |
| | $ | 43,670.0 |
|
| | | | | | | | | |
| Liabilities and Stockholders' Equity | | |
| | |
| | |
| | |
|
| Current liabilities: | | |
| | |
| | |
| | |
|
| Accounts payable | | $ | 169.7 |
| | $ | 156.5 |
| | $ | 149.7 |
| | $ | 152.3 |
|
| Accrued expenses and other current liabilities | | 1,314.9 |
| | 1,178.3 |
| | 1,381.9 |
| | 1,246.8 |
|
| Accrued payroll and payroll-related expenses | | 707.1 |
| | 631.3 |
| | 562.5 |
| | 616.7 |
|
| Dividends payable | | 226.9 |
| | 206.7 |
| | 250.5 |
| | 238.4 |
|
| Short-term deferred revenues | | 332.6 |
| | 314.6 |
| | 232.9 |
| | 233.2 |
|
| Obligations under reverse repurchase agreements (A) | | — |
| | 245.9 |
| |
| Obligations under commercial paper borrowings (B) | | 2,173.0 |
| | — |
| |
| Income taxes payable | | 20.4 |
| | 39.0 |
| | 49.0 |
| | 28.2 |
|
| Liabilities of discontinued operations | | — |
| | 4.2 |
| |
| Total current liabilities before client funds obligations | | 4,944.6 |
| | 2,776.5 |
| | 2,626.5 |
| | 2,515.6 |
|
| Client funds obligations | | 18,963.4 |
| | 21,956.3 |
| | 27,189.4 |
| | 33,331.8 |
|
| Total current liabilities | | 23,908.0 |
| | 24,732.8 |
| | 29,815.9 |
| | 35,847.4 |
|
| Long-term debt | | 11.5 |
| | 14.7 |
| | 2,002.4 |
| | 2,007.7 |
|
| Other liabilities | | 660.0 |
| | 603.1 |
| | 830.2 |
| | 701.1 |
|
| Deferred income taxes | | 288.8 |
| | 234.4 |
| | 163.1 |
| | 251.1 |
|
| Long-term deferred revenues | | 513.2 |
| | 493.2 |
| | 391.4 |
| | 381.1 |
|
| Total liabilities | | 25,381.5 |
| | 26,078.2 |
| | 33,203.0 |
| | 39,188.4 |
|
| | | | | | | | | |
| Commitments and Contingencies (Note 13) | | | | | |
| | | | | | |
| 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, 2014 and 2013; outstanding, 480.2 and 482.6 shares at June 30, 2014 and June 30, 2013, respectively | | 63.9 |
| | 63.9 |
| |
Common stock, $0.10 par value: Authorized, 1,000.0 shares; issued 638.7 shares at June 30, 2017 and 2016, outstanding, 445.0 and 455.7 shares at June 30, 2017 and 2016, respectively | | | 63.9 |
| | 63.9 |
|
| Capital in excess of par value | | 545.2 |
| | 456.9 |
| | 867.8 |
| | 768.1 |
|
| Retained earnings | | 13,632.9 |
| | 13,020.3 |
| | 14,728.2 |
| | 14,003.3 |
|
Treasury stock - at cost: 158.5 and 156.1 shares at June 30, 2014 and June 30, 2013, respectively | | (7,750.0 | ) | | (7,366.6 | ) | |
| Accumulated other comprehensive income | | 178.2 |
| | 15.4 |
| |
| Treasury stock - at cost: 193.7 and 183.0 shares at June 30, 2017 and June 30, 2016, respectively | | | (11,303.7 | ) | | (10,138.6 | ) |
| Accumulated other comprehensive loss | | | (379.2 | ) | | (215.1 | ) |
| Total stockholders’ equity | | 6,670.2 |
| | 6,189.9 |
| | 3,977.0 |
| | 4,481.6 |
|
| Total liabilities and stockholders’ equity | | $ | 32,051.7 |
| | $ | 32,268.1 |
| | $ | 37,180.0 |
| | $ | 43,670.0 |
|
(A) As of June 30, 2013, $245.2 million of long-term marketable securities and $0.7 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements (see Note 10).
(B) As of June 30, 2014, $2,015.8 million of short-term marketable securities and $183.8 million of cash and cash equivalents are related to the Company's outstanding commercial paper borrowings (see Note 10).
See notes to the consolidated financial statements.Consolidated Financial Statements.
Statements of Consolidated Stockholders' Equity
(In millions, except per share amounts)
| | | | | Common Stock | | Capital in Excess of Par Value | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income | | Common Stock | | Capital in Excess of Par Value | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income |
| | | Shares | | Amount | | | Shares | | Amount | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2011 | | 638.7 |
| | $ | 63.9 |
| | $ | 489.5 |
| | $ | 11,803.9 |
| | $ | (6,714.0 | ) | | $ | 367.1 |
| |
| Balance at June 30, 2014 | | | 638.7 |
| | $ | 63.9 |
| | $ | 545.2 |
| | $ | 13,632.9 |
| | $ | (7,750.0 | ) | | $ | 178.2 |
|
| Net earnings | | — |
| | — |
| | — |
| | 1,388.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,452.5 |
| | — |
| | — |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (136.9 | ) | |
| Other comprehensive (loss) | | | — |
| | — |
| | — |
| | — |
| | — |
| | (350.6 | ) |
| Stock-based compensation expense | | — |
| | — |
| | 78.7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 112.8 |
| | — |
| | — |
| | — |
|
Issuances relating to stock compensation plans | | — |
| | — |
| | (106.0 | ) | | — |
| | 356.5 |
| | — |
| | — |
| | — |
| | (67.8 | ) | | — |
| | 243.0 |
| | — |
|
| Tax benefits from stock compensation plans | | — |
| | — |
| | 24.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 73.1 |
| | — |
| | — |
| | — |
|
| Treasury stock acquired (14.6 shares) | | — |
| | — |
| | — |
| | — |
| | (747.3 | ) | | — |
| |
| Dividends ($1.55 per share) | | — |
| | — |
| | — |
| | (754.1 | ) | | — |
| | — |
| |
| Treasury stock acquired (18.2 shares) | | | — |
| | — |
| | — |
| | — |
| | (1,611.4 | ) | | — |
|
| Spin-off of CDK Global, Inc. | | | — |
| | — |
| | — |
| | (1,523.0 | ) | | — |
| | (88.2 | ) |
| Dividend from CDK Global, Inc. | | | — |
| | — |
| | — |
| | 825.0 |
| | — |
| | — |
|
| Dividends ($1.95 per share) | | | — |
| | — |
| | — |
| | (927.1 | ) | | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2012 | | 638.7 |
| | $ | 63.9 |
| | $ | 486.4 |
| | $ | 12,438.3 |
| | $ | (7,104.8 | ) | | $ | 230.2 |
| |
| Net earnings | | — |
| | — |
| | — |
| | 1,405.8 |
| | — |
| | — |
| |
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (214.8 | ) | |
| Stock-based compensation expense | | — |
| | — |
| | 79.2 |
| | — |
| | — |
| | — |
| |
Issuances relating to stock compensation plans | | — |
| | — |
| | (148.3 | ) | | — |
| | 384.7 |
| | — |
| |
| Tax benefits from stock compensation plans | | — |
| | — |
| | 39.6 |
| | — |
| | — |
| | — |
| |
| Treasury stock acquired (10.4 shares) | | — |
| | — |
| | — |
| | — |
| | (646.5 | ) | | — |
| |
| Dividends ($1.70 per share) | | — |
| | — |
| | — |
| | (823.8 | ) | | — |
| | — |
| |
| | | | | | | | | | | | | | |
| Balance at June 30, 2013 | | 638.7 |
| | $ | 63.9 |
| | $ | 456.9 |
| | $ | 13,020.3 |
| | $ | (7,366.6 | ) | | $ | 15.4 |
| |
| Balance at June 30, 2015 | | | 638.7 |
| | $ | 63.9 |
| | $ | 663.3 |
| | $ | 13,460.3 |
| | $ | (9,118.4 | ) | | $ | (260.6 | ) |
| Net earnings | | — |
| | — |
| | — |
| | 1,515.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,492.5 |
| | — |
| | — |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | 162.8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45.5 |
|
| Stock-based compensation expense | | — |
| | — |
| | 110.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 117.2 |
| | — |
| | — |
| | — |
|
Issuances relating to stock compensation plans | | — |
| | — |
| | (78.6 | ) | | — |
| | 314.5 |
| | — |
| | — |
| | — |
| | (47.5 | ) | | — |
| | 182.5 |
| | — |
|
| Tax benefits from stock compensation plans | | — |
| | — |
| | 56.6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35.1 |
| | — |
| | — |
| | — |
|
| Treasury stock acquired (9.0 shares) | | — |
| | — |
| | — |
| | — |
| | (697.9 | ) | | — |
| |
| Dividends ($1.88 per share) | | — |
| | — |
| | — |
| | (903.3 | ) | | — |
| | — |
| |
| Treasury stock acquired (13.8 shares) | | | — |
| | — |
| | — |
| | — |
| | (1,202.7 | ) | | — |
|
| Other | | | — |
| | — |
| | — |
| | 6.2 |
| | — |
| | — |
|
| Dividends ($2.08 per share) | | | — |
| | — |
| | — |
| | (955.7 | ) | | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2014 | | 638.7 |
| | $ | 63.9 |
| | $ | 545.2 |
| | $ | 13,632.9 |
| | $ | (7,750.0 | ) | | $ | 178.2 |
| |
| Balance at June 30, 2016 | | | 638.7 |
| | $ | 63.9 |
| | $ | 768.1 |
| | $ | 14,003.3 |
| | $ | (10,138.6 | ) | | $ | (215.1 | ) |
| Net earnings | | | — |
| | — |
| | — |
| | 1,733.4 |
| | — |
| | — |
|
| Other comprehensive loss | | | — |
| | — |
| | — |
| | — |
| | — |
| | (164.1 | ) |
| Stock-based compensation expense | | | — |
| | — |
| | 115.5 |
| | — |
| | — |
| | — |
|
| Issuances relating to stock compensation plans | | | — |
| | — |
| | (15.8 | ) | | — |
| | 169.2 |
| | — |
|
| Treasury stock acquired (13.5 shares) | | | — |
| | — |
| | — |
| | — |
| | (1,334.3 | ) | | — |
|
| Dividends ($2.24 per share) | | | — |
| | — |
| | — |
| | (1,008.5 | ) | | — |
| | — |
|
| Balance at June 30, 2017 | | | 638.7 |
| | $ | 63.9 |
| | $ | 867.8 |
| | $ | 14,728.2 |
| | $ | (11,303.7 | ) | | $ | (379.2 | ) |
See notes to the consolidated financial statements.Consolidated Financial Statements.
Statements of Consolidated Cash Flows
(In millions)
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| Cash Flows from Operating Activities: | | | | | | | | | | | | |
| Net earnings | | $ | 1,515.9 |
| | $ | 1,405.8 |
| | $ | 1,388.5 |
| | $ | 1,733.4 |
| | $ | 1,492.5 |
| | $ | 1,452.5 |
|
| Adjustments to reconcile net earnings to cash flows provided by operating activities: | | |
| | |
| | | | |
| | |
| | |
| Depreciation and amortization | | 336.2 |
| | 316.7 |
| | 319.3 |
| | 316.1 |
| | 288.6 |
| | 277.9 |
|
| Deferred income taxes | | (50.3 | ) | | 24.7 |
| | 36.1 |
| | 10.0 |
| | 0.7 |
| | (15.3 | ) |
| Stock-based compensation expense | | 138.4 |
| | 96.4 |
| | 94.1 |
| | 138.9 |
| | 137.6 |
| | 143.2 |
|
| Net pension expense | | 29.7 |
| | 43.7 |
| | 36.7 |
| | 24.2 |
| | 17.7 |
| | 17.6 |
|
| Net realized gain from the sales of marketable securities | | (16.5 | ) | | (28.6 | ) | | (24.4 | ) | |
| Net amortization of premiums and accretion of discounts on available-for-sale securities | | 94.4 |
| | 79.3 |
| | 60.0 |
| | 85.9 |
| | 94.1 |
| | 100.3 |
|
| Impairment losses on available-for-sale securities | | — |
| | — |
| | 5.8 |
| |
| Impairment losses on assets held for sale | | — |
| | — |
| | 2.2 |
| |
| Goodwill impairment | | — |
| | 42.7 |
| | — |
| |
| Gain on sale of assets | | — |
| | — |
| | (66.0 | ) | |
| Gains on sales of buildings | | — |
| | (2.2 | ) | | — |
| |
| Gain on sale of discontinued businesses, net of tax | | (10.5 | ) | | (36.7 | ) | | — |
| |
| Gain on sale of building | | | — |
| | (13.9 | ) | | — |
|
| Gain on sale of divested businesses, net of tax | | | (121.4 | ) | | (21.8 | ) | | (78.4 | ) |
| Other | | (21.6 | ) | | 8.4 |
| | 14.6 |
| | 37.1 |
| | 30.7 |
| | 1.8 |
|
| Changes in operating assets and liabilities, net of effects from acquisitions | | |
| | |
| | | |
| and divestitures of businesses: | | |
| | |
| | | |
| Increase in accounts receivable | | (204.0 | ) | | (218.2 | ) | | (41.7 | ) | |
| Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses: | | | |
| | |
| | |
| Decrease/(increase) in accounts receivable | | | 23.4 |
| | (224.6 | ) | | (175.1 | ) |
| Increase in other assets | | (253.2 | ) | | (283.5 | ) | | (71.7 | ) | | (269.1 | ) | | (108.9 | ) | | (109.1 | ) |
| Increase / (decrease) in accounts payable | | 9.7 |
| | (10.1 | ) | | 10.3 |
| |
| (Decrease)/Increase in accounts payable | | | (11.6 | ) | | (15.9 | ) | | 13.1 |
|
| Increase in accrued expenses and other liabilities | | 253.0 |
| | 135.4 |
| | 134.5 |
| | 159.0 |
| | 220.5 |
| | 122.1 |
|
| Proceeds from the sale of notes receivable | | | — |
| | — |
| | 226.7 |
|
| Operating activities of discontinued operations | | 0.2 |
| | 3.4 |
| | 11.9 |
| | — |
| | — |
| | (3.3 | ) |
| Net cash flows provided by operating activities | | 1,821.4 |
| | 1,577.2 |
| | 1,910.2 |
| | 2,125.9 |
| | 1,897.3 |
| | 1,974.0 |
|
| | | | | | | | | | | | | |
| Cash Flows from Investing Activities: | | |
| | |
| | | | |
| | |
| | |
| Purchases of corporate and client funds marketable securities | | (3,414.9 | ) | | (4,902.6 | ) | | (5,113.5 | ) | | (4,382.8 | ) | | (5,876.3 | ) | | (5,047.6 | ) |
| Proceeds from the sales and maturities of corporate and client funds marketable securities | | 2,059.5 |
| | 3,638.6 |
| | 3,962.2 |
| | 3,593.6 |
| | 5,215.4 |
| | 3,841.0 |
|
| Net decrease / (increase) in restricted cash and cash equivalents held to satisfy client funds obligations | | 2,537.8 |
| | (161.0 | ) | | 4,855.0 |
| |
| Net decrease/(increase) in restricted cash and cash equivalents held to satisfy client funds obligations | | | 6,843.6 |
| | (8,218.2 | ) | | (2,960.6 | ) |
| Capital expenditures | | (216.6 | ) | | (174.6 | ) | | (140.1 | ) | | (240.2 | ) | | (168.5 | ) | | (158.8 | ) |
| Additions to intangibles | | (151.1 | ) | | (108.3 | ) | | (109.5 | ) | | (230.4 | ) | | (217.5 | ) | | (176.7 | ) |
| Acquisitions of businesses, net of cash acquired | | (25.7 | ) | | (42.0 | ) | | (265.7 | ) | | (87.4 | ) | | — |
| | (8.1 | ) |
| Proceeds from the sale of property, plant, and equipment and other assets | | 0.4 |
| | 10.0 |
| | 71.6 |
| | — |
| | 15.7 |
| | 23.6 |
|
| Dividend received from CDK Global, Inc. | | | — |
| | — |
| | 825.0 |
|
| Cash retained by CDK Global, Inc. | | | — |
| | — |
| | (180.0 | ) |
| Proceeds from the sale of divested businesses | | | 234.0 |
| | 162.2 |
| | 98.6 |
|
| Investing activities of discontinued operations | | (0.5 | ) | | (0.6 | ) | | — |
| | — |
| | — |
| | (16.7 | ) |
| Proceeds from the sale of businesses included in discontinued operations | | 24.4 |
| | 161.4 |
| | — |
| |
| Other | | — |
| | 0.7 |
| | (16.4 | ) | |
| Net cash flows provided by (used in) investing activities | | 813.3 |
| | (1,578.4 | ) | | 3,243.6 |
| |
| Net cash flows provided by/(used in) investing activities | | | 5,730.4 |
| | (9,087.2 | ) | | (3,760.3 | ) |
| | | | | | | | | | | | | |
| Cash Flows from Financing Activities: | | |
| | |
| | | | |
| | |
| | |
| Net (decrease) / increase in client funds obligations | | (2,989.5 | ) | | 1,138.5 |
| | (3,726.6 | ) | |
| Net (decrease)/increase in client funds obligations | | | (6,120.6 | ) | | 8,803.3 |
| | 6,074.4 |
|
| Proceeds from debt issuance | | | — |
| | 1,998.3 |
| | — |
|
| Payments of debt | | (3.3 | ) | | (17.5 | ) | | (2.0 | ) | | (2.0 | ) | | (1.5 | ) | | (2.3 | ) |
| Repurchases of common stock | | (667.3 | ) | | (647.3 | ) | | (741.3 | ) | | (1,259.6 | ) | | (1,155.7 | ) | | (1,557.2 | ) |
| Proceeds from stock purchase plan and exercises of stock options | | 219.1 |
| | 235.3 |
| | 250.0 |
| | 95.7 |
| | 75.3 |
| | 109.1 |
|
| Dividends paid | | (883.1 | ) | | (805.5 | ) | | (739.7 | ) | | (995.2 | ) | | (943.6 | ) | | (927.6 | ) |
| Net (repayments of) / proceeds from reverse repurchase agreements | | (245.9 | ) | | 245.9 |
| | — |
| |
| Net proceeds from issuance of commercial paper | | 2,173.0 |
| | — |
| | — |
| |
| Net repayments from issuance of commercial paper | | | — |
| | — |
| | (2,173.0 | ) |
| Other | | 38.8 |
| | 1.6 |
| | 5.7 |
| | — |
| | (23.4 | ) | | 23.4 |
|
| Net cash flows (used in) / provided by financing activities | | (2,358.2 | ) | | 151.0 |
| | (4,953.9 | ) | |
| Financing activities of discontinued operations | | | — |
| | — |
| | 1.5 |
|
| Net cash flows (used in)/provided by financing activities | | | (8,281.7 | ) | | 8,752.7 |
| | 1,548.3 |
|
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | 8.0 |
| | 1.2 |
| | (41.2 | ) | | 14.7 |
| | (11.0 | ) | | (106.3 | ) |
| | | | | | | | | | | | | |
| Net change in cash and cash equivalents | | 284.5 |
| | 151.0 |
| | 158.7 |
| | (410.7 | ) | | 1,551.8 |
| | (344.3 | ) |
| | | | | | | | | | | | | |
| Cash and cash equivalents of continuing operations, beginning of period | | 1,699.1 |
| | 1,548.1 |
| | 1,389.4 |
| |
| Cash and cash equivalents, beginning of period | | | 3,191.1 |
| | 1,639.3 |
| | 1,983.6 |
|
| Cash and cash equivalents, end of period | | | $ | 2,780.4 |
| | $ | 3,191.1 |
| | $ | 1,639.3 |
|
| | | | | | | | | | | | | |
| Cash and cash equivalents of continuing operations, end of period | | $ | 1,983.6 |
| | $ | 1,699.1 |
| | $ | 1,548.1 |
| |
| Supplemental disclosures of cash flow information: | | | | | | | |
| Cash paid for interest | | | $ | 78.1 |
| | $ | 37.5 |
| | $ | 5.7 |
|
| Cash paid for income taxes, net of income tax refunds | | | $ | 817.1 |
| | $ | 651.6 |
| | $ | 773.3 |
|
See notes to the consolidated financial statements.Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Preparation. The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc. and its subsidiaries (“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 preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue,revenues, costs, expenses, and accumulated other comprehensive income (loss) that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. The Consolidated Financial Statements and all relevant footnotes have been adjusted for all businesses that qualify as a discontinued operation (see Note 3).
B. Description of Business. The Company is a provider of technology-based outsourcing solutions to employers and vehicle retailers and manufacturers.cloud-based Human Capital Management ("HCM") solutions. The Company classifies its operations into the following two reportable segments: Employer Services;Services and Professional Employer Organization (“PEO”) Services; and Dealer Services. The primary components of “Other” are non-recurring gains and losses, miscellaneous processing services, the “Other” segment areelimination of intercompany transactions, interest expense, the results of operations of ADP Indemnity, (a wholly-owned captive insurance company that provides workers' compensation and employer's liability deductible reimbursement insurance protection for PEO Services worksite employees), non-recurring gains and losses, miscellaneous processing services, such as customer financing transactions, and certain charges and expenses that have not been allocated to the reportable segments, such asand the historical results of the AdvancedMD ("AMD") business. Beginning in the first quarter of fiscal 2017, the Company's chief operating decision maker began reviewing the Company's results with stock-based compensation expense,included in the goodwill impairment chargeCompany's operating segments. This change, as well as changes to the allocation methodology for certain corporate level allocations and the year ended June 30, 2013 ("fiscal 2013"), and direct and incremental costs incurred to consummate the planned separationmovement of the historical results of AMD to Other, has been adjusted in both the current period and the prior period and did not materially affect reportable segment results. Prior to October 1, 2014, the Company had a third reportable segment, Dealer Services business.Services. See Note 3 for further information.
C. Revenue Recognition. Revenues are primarily attributable to fees for providing services (e.g., Employer Services' payroll processing fees) as well as, investment income on payroll funds, payroll tax filing funds, and other Employer Services' client-related funds.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). Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties.
PEO revenues are reported net of direct pass-through costs, which are costs billedprovides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and incurredadministering state unemployment insurance, among other human resources functions. Amounts collected from PEO worksite employers include payroll, fees for PEO Services worksite employees, primarily consisting ofbenefits, and an administrative fee that also includes payroll wages and payroll taxes. Benefits, workers'taxes, fees for workers’ compensation and state unemployment taxtaxes.
The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company is not the primary obligor with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is the primary obligor, has latitude in establishing price, selects suppliers, and determines the service specifications.
The fees collected from the worksite employers for worksite employeesbenefits, workers’ compensation and state unemployment taxes are includedpresented in PEO revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses.expenses, as the Company acts as a principal with respect to this aspect of the arrangement. With respect to the fees for benefits, workers’ compensation and state unemployment taxes, the Company is the primary obligor, has latitude in establishing price, selects suppliers, determines the service specifications and is liable for credit risk.
Interest income on collected but not yet remitted funds held for clients is recognized in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.
The Company also recognizes revenues associated withClient implementation fees are charged to set clients up on the sale of software systemsCompany's platform and associated software licenses (e.g., Dealer Services' dealer management systems). For a majority of our software sales arrangements, which provide hardware, software licenses, installation,are deferred until the client has gone live on the Company's solutions and post-contract customer support, revenuesservices have begun. These fees are recognized ratablyamortized to revenue over the software license term, as vendor-specific objective evidencelonger of the fair valuescontractual term or the expected client life, including estimated renewals of client contracts. Additionally, certain implementation costs are deferred until the client has gone live on the Company's solution and services have begun and are then amortized over the longer of the individual elements incontractual term or the sales arrangement does not exist.expected client life, including estimated renewals of client contracts.
The Company assesses 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.
D. Cash and Cash Equivalents. InvestmentHighly 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.
E. 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 a specific-identification basis and are included in other income, 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 areis 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.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.
F. 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).
Available-for-sale securities included in Level 1The Company's corporate investments and funds held for clients (see Note 6) and its long term debt are valued using closing prices for identical instruments that are tradedmeasured at fair value on active exchanges.a recurring basis as described below. Over 99% of the Company's available-for-sale securities included in Level 2 are valued utilizing inputsbased on prices obtained from an independent pricing service. To determine the fair value of the Company's Level 2 investments, the independent pricing service uses various pricing models for each asset class that are consistent with what other market participants would use, including the market approach. Inputs and assumptions to the pricing model of the independent pricing service are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and other market-related data. Since many fixed income securities do not
trade on a daily basis, the independent pricing service applies available information, as applicable, through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. For the purposes of valuing the Company’s asset-backed securities, as well as the mortgage-backed securities that are included within Other securities in Note 6, the independent pricing service includes additional inputs to the model such as monthly payment information, new issue data, and collateral performance. For the purposes of valuing the Company’s Municipal bonds, the independent pricing service includes Municipal Market Data benchmark yield curves as additional inputs to the model. While the Company is not provided access to the proprietary models of the third party pricing service, each quarterly reporting period, the Company reviews the inputs utilized by the independent pricing service and compares the valuations received from the independent pricing service to valuations from at least one other observable source for reasonableness. The Company has not adjusted the prices obtained from the independent pricing service and the Company believes the prices received from the independent pricing service are representative of the prices that would be received to sell the assets at the measurement date (exit price). The Company has no available-for-sale securities included in Level 1 and Level 3.
In September 2015, the Company issued fixed-rate notes with 5-year and 10-year maturities for an aggregate principal amount of $2.0 billion (collectively the "Notes"). The Notes are valued utilizing a variety of inputs are utilized,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, new issue data, and monthly payment information.data. The Company reviews the values generated by the independent pricing service for reasonableness by comparing the valuations received from the independent pricing service to valuations from at least one other observable source. The Company has not adjusted the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 3.
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.
G. Long-term Receivables. Long-term receivables primarily relate to notes receivable from the sale of computer systems to auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment retailers and manufacturers. Unearned income from finance receivables represents the excess of gross receivables over the sales price of the computer systems financed. Unearned income is amortized using the effective-interest method to maintain a constant rate of return over the term of each contract.
Notes receivable aged over 30 days past due are considered delinquent and notes receivable aged over 60 days past due with known collection issues are placed on non-accrual status. Interest revenue is not recognized on notes receivable while on non-accrual status. Cash payments received on non-accrual receivables are applied towards the principal. When notes receivable on non-accrual status are again less than 60 days past due, recognition of interest revenue for notes receivable is resumed.
The allowance for doubtful accounts on long-term receivables is the Company's best estimate of the amount of probable credit losses related to the Company's existing note receivables.
H. Property, Plant and Equipment. Property, plant and equipment is stated at cost and depreciatedless accumulated depreciation on the Consolidated Balance Sheets. Depreciation is recognized over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of assets are primarily as follows:
|
| |
| Data processing equipment | 2 to 5 years |
| Buildings | 20 to 40 years |
| Furniture and fixtures | 34 to 7 years |
The Company has obligations under various facilities and equipment leases. The Company assesses whether these arrangements meet the criteria for capital leases by determining whether the agreement transfers ownership of the asset, whether the lease includes a bargain purchase option, whether the lease term is for greater than 75% of the asset's useful life, or whether the minimum lease payments exceed 90% of the leased equipment's fair market value. All of the Company's leases are classified as operating leases. Total expense under these operating lease agreements was approximately $234.5 million, $201.7 million, and $201.8 million in fiscal 2017, 2016, and 2015, respectively.
I.H. 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 not amortized, but is instead tested annually for impairment annually and whenever events or changes in circumstances indicate the carrying value may notmore frequently when an event or circumstance indicates that goodwill might be recoverable. impaired.
The Company performs thisCompany's annual goodwill impairment test by first comparing the fair value of each reporting units to its carrying amount. If the carrying value for a reporting unit exceeds its fair value, the Company would then compare the implied fair value of goodwill to the carrying amount in order to determine the amount of the impairment, if any. The Company determines the estimated fair value of its reporting units using an equal weighted blended approach, which combines the income approach, which is the present value of expected cash flows, discounted at a risk-adjusted weighted-average cost of capital; and the market approach, which is based on 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. The Company had $3,113.8 million of goodwillassessment as of June 30, 2014.2017 was performed for all reporting units using a qualitative approach. The qualitative assessment considered industry and market considerations for any deterioration in the environment in which the Company operates, the competitive environment, a decline (both absolute and relative to peers) in market-dependent multiples or metrics, any changes in the market for the Company's products and services, and regulatory and political developments. Additionally, the Company assessed financial performance by reporting unit and considered cost factors, such as labor or other costs, that would have a negative effect on results. Based on the fair value analysis completed in the fourth quarter of 2014,qualitative assessment, the Company concludedhas determined that goodwill fair value exceeded the carrying value for all reporting units. In fiscal 2013, the Company recognized a $42.7 million impairment on its AdvancedMD reporting unit.is not impaired.
J.I. Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to
be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
K.J. Foreign Currency Translation.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 immaterialnot significant for all periods presented.
L.K. 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.
Derivative financial instruments are measured at fair value and are recognized as assets or liabilities on the Consolidated Balance Sheets with changes in the fair value of the derivatives recognized in either net earnings from continuing operations or accumulated other comprehensive income, depending on the timing and designated purpose of the derivative.
There were no derivative financial instruments outstanding at June 30, 2014 or June 30, 2013.
M.L. 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, | | Basic | | Effect of Employee Stock Option Shares | | Effect of Employee Restricted Stock Shares | | Diluted | | Basic | | Effect of Employee Stock Option Shares | | Effect of Employee Restricted Stock Shares | | Diluted |
| 2014 | | |
| | |
| | |
| | |
| |
| 2017 | | | |
| | |
| | |
| | |
|
| Net earnings from continuing operations | | $ | 1,502.6 |
| | |
| | |
| | $ | 1,502.6 |
| | $ | 1,733.4 |
| | |
| | |
| | $ | 1,733.4 |
|
| Weighted average shares (in millions) | | 478.9 |
| | 2.7 |
| | 1.5 |
| | 483.1 |
| | 447.8 |
| | 0.9 |
| | 1.6 |
| | 450.3 |
|
| EPS from continuing operations | | $ | 3.14 |
| | |
| | |
| | $ | 3.11 |
| | $ | 3.87 |
| | |
| | |
| | $ | 3.85 |
|
| | | | | | | | | | | | | | | | | |
| 2013 | | |
| | |
| | |
| | |
| |
| 2016 | | | |
| | |
| | |
| | |
|
| Net earnings from continuing operations | | $ | 1,358.1 |
| | |
| | |
| | $ | 1,358.1 |
| | $ | 1,493.4 |
| | |
| | |
| | $ | 1,493.4 |
|
| Weighted average shares (in millions) | | 482.7 |
| | 3.3 |
| | 1.1 |
| | 487.1 |
| | 457.0 |
| | 0.8 |
| | 1.3 |
| | 459.1 |
|
| EPS from continuing operations | | $ | 2.81 |
| | |
| | |
| | $ | 2.79 |
| | $ | 3.27 |
| | |
| | |
| | $ | 3.25 |
|
| | | | | | | | | | | | | | | | | |
| 2012 | | |
| | |
| | |
| | |
| |
| 2015 | | | |
| | |
| | |
| | |
|
| Net earnings from continuing operations | | $ | 1,375.2 |
| | |
| | |
| | $ | 1,375.2 |
| | $ | 1,376.5 |
| | |
| | |
| | $ | 1,376.5 |
|
| Weighted average shares (in millions) | | 487.3 |
| | 3.8 |
| | 1.1 |
| | 492.2 |
| | 472.6 |
| | 1.6 |
| | 1.6 |
| | 475.8 |
|
| EPS from continuing operations | | $ | 2.82 |
| | |
| | |
| | $ | 2.79 |
| | $ | 2.91 |
| | |
| | |
| | $ | 2.89 |
|
Options to purchase 1.0 million, 1.5 million, 1.21.8 million, and 0.90.4 million shares of common stock for the year ended June 30, 2014 ("fiscal 2014"), fiscal 2013,2017, 2016, and the year ended June 30, 2012 ("fiscal 2012"),2015, respectively, were excluded from the calculation of diluted earnings per share because their exercise prices exceeded the average market price of outstanding common shares for the respective periods.inclusion would have been anti-dilutive.
N.M. 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.grant, and in the case of international units settled in cash, adjusts this fair value based on changes in the Company's stock price during the vesting period. The Company determines the fair value of stock options issued using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of the Company's stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of a stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. Restricted stock units and restricted stock awards are valued based on the closing price of the Company's common stock on the date of the grant and, in the case of performance based restricted stock
units and restricted stock, are adjusted for changes to probabilities of achieving performance targets. International restricted stock units are settled in cash and are marked-to-market based on changes in the Company's stock price. See Note 11 for additional information on the Company's stock-based compensation programs.
O.N. Internal Use Software. Expenditures for major software purchases and software developed or obtained for internal use are capitalized and amortized over a three to five-year period on a straight-line basis. The Company begins to capitalize costs incurred for computer software developed for internal use when the preliminary development efforts are successfully completed, management has authorized and committed to funding the project, and it is probable that the project will be completed and the software will be used as intended. Capitalization ceases when a computer software project is substantially complete and ready for its intended use.
The Company's policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are 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.
O. 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.
P. Computer Software to be Sold, Leased, or Otherwise Marketed. The Company capitalizes certain costs of computer software to be sold, leased, or otherwise marketed. The Company's policy provides for the capitalization of all software production costs upon reaching technological feasibility for a specific product. Technological feasibility is attained when software products have a completed working model whose consistency with the overall product design has been confirmed by testing. Costs incurred prior to the establishment of technological feasibility are expensed as incurred. The establishment of technological feasibility requires judgment by management and in many instances is only attained a short time prior to the general release of the software. Upon the general release of the software product to customers, capitalization ceases and such costs are amortized over a three-year period on a straight-line basis. Maintenance-related costs are expensed as incurred.
Q. Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities.
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, 20142017 and 2013,2016, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $56.7$74.6 million and $70.727.4 million, respectively.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, favorable settlements related to various jurisdictions and tax periods could increase earnings by up to $10$35 million. in the next twelve months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability, and deferred taxes in the period in which the facts that give rise to a revision become known.
R.Q. 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. The CompanyPEO Services has secured specifica workers’ compensation and employer’s liability insurance policy that has a $1 million per occurrence insurance that caps the exposure for each claim at $1 million per occurrence,retention and, has also securedin fiscal years 2012 and prior, aggregate stop loss insurance that capscovers any aggregate losses atwithin the $1 million retention that collectively exceed a certain level, from an admitted and licensed insurance company of AIG. For the fiscal years 2013 to 2017, as well as in eachJuly 2017 for
the year ended June 30, 2018 ("fiscal 2018") policy year. Additionally, for fiscal 2013 and 2014, the Company enteredyear, 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 for the fiscal 2013 and 2014ADP Indemnity during these policy yearsyears. Each of these reinsurance arrangements limit our overall exposure incurred up to a certain limit. The Company believes the $1 million per occurrence related to workers' compensation and employer's liability deductible reimbursement insurance protection for PEO services worksite employees.likelihood of ultimate losses exceeding this limit is remote.
S.R. Recently Issued Accounting Pronouncements.
Recently Adopted Accounting Pronouncements
In July 2016, the Company adopted Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718)." As a result of this standard, the Company prospectively recorded income tax benefits and deficiencies with respect to stock-based compensation as income tax expense or benefit in the income statement for periods beginning after July 1, 2016. This resulted in a $32.1 million benefit in income tax expense for fiscal 2017. The Company retrospectively classified excess tax benefits as an operating activity on the Statements of Consolidated Cash Flows, which increased operating cash flows and decreased financing cash flows by $37.4 million and $68.4 million for fiscal 2016 and 2015, respectively. See Note 12 for the impact of the prospective adoption of the excess tax benefits in the income statement for fiscal 2017.
In July 2016, the Company prospectively adopted ASU 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." The update provides guidance on whether a cloud computing arrangement includes a software license. For new and materially modified cloud computing arrangements that include a software license entered into after July 1, 2016, the Company accounts for the software license element consistent with the acquisition of other software licenses. If the new or materially modified cloud computing arrangement does not include a software license, the Company accounts for the arrangement as a service contract. The adoption of ASU 2015-05 did not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
In July 2016, the Company prospectively adopted ASU 2015-04, "Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets." The update allows an entity to remeasure their pension and other post-retirement benefit plan assets and liabilities at the month-end closest to a significant event such as a plan amendment, curtailment, or settlement. The adoption had no impact on the Company's consolidated results of operations, financial condition, or cash flows as presented, however, the future impact of ASU 2015-04 will be dependent upon the nature of future significant events impacting the Company's pension plans, if any.
Recently Issued Accounting Pronouncements
In May 2014,2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU"ASU 2017-09, "Compensation - Stock Compensation (Topic 708) Scope of Modification Accounting." ASU 2017-09 provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2017-09 is not expected to have a material impact on the Company’s consolidated results of operations, financial condition, or cash flows, however, the future impact will be dependent on the nature of future modifications of any share-based payment awards.
In March 2017, the FASB issued ASU 2017-08, "Receivables - Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities." ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. ASU 2017-08 is not expected to have a material impact on the Company’s consolidated results of operations, financial condition, or cash flows.
In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost." ASU 2017-07 requires reporting the service cost component in the same line item or items as other compensation costs arising during the period in the Statements of Consolidated Earnings. The other components of net periodic pension cost are required to be presented in the Statements of Consolidated Earnings separately from the service cost component. Such changes are to be applied retrospectively from the date of adoption. ASU 2017-07 will be effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company has not yet determined the impact of ASU 2017-07 on its consolidated results of operations, financial condition, or cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairments.” ASU 2017-04 establishes a one-step process for testing goodwill for a decrease in value, requiring
a goodwill impairment loss to be measured as the excess of the reporting unit’s carrying amount over its fair value. The guidance eliminates the second step of the current two-step process that requires the impairment to be measured as the difference between the implied value of a reporting unit’s goodwill with the goodwill’s carrying amount. ASU 2017-04 will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual impairment tests after January 1, 2017. ASU 2017-04 is not expected to have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805) - Clarifying the Definition of a Business," to clarify the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The impact of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions made by the Company, if any.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. Accordingly, restricted cash will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statements of Consolidated Cash Flows. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company expects to retrospectively adopt the new standard in its fiscal year beginning on July 1, 2017. ASU 2016-18 will not have a material impact on the Company's consolidated results of operations or financial condition.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." This update amends the existing accounting standards for lease accounting, and requires lessees to recognize virtually all of their leases on the balance sheet by recording a right-of-use asset and lease liabilities (other than leases that meet the definition of a "short-term lease"). ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company has not yet determined the impact of ASU 2016-02 on its consolidated results of operations, financial condition, or cash flows.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.guidance, and has since issued additional amendments to ASU 2014-09 requires2014-09. These new standards require an entity to recognize revenue depicting the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09The new standards will also result in enhanced revenue related disclosures. ASU 2014-09 isEntities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Statements of Consolidated Financial Position. The new standards are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016. 2017. Early adoption is permitted.
The Company had been assessing the impact of the new revenue recognition standard on its relationships with its clients. In fiscal 2017, the Company determined it will not early adopt the standard, and instead will adopt the new standard in its fiscal year beginning on July 1, 2018. Further, the Company anticipates applying the guidance under the full retrospective approach. The Company is nearly complete with its comprehensive diagnostic of the measurement and recognition provisions of the new standard and is in the process of finalizing its conclusions and policies. The Company expects the provisions of the new standard to primarily impact the manner in which it treats certain costs to fulfill contracts (i.e., implementation costs) and costs to acquire new contracts (i.e., selling costs). The provisions of the new standard will require the Company to capitalize and amortize additional implementation costs than those capitalized and amortized under current U.S. GAAP. Further, under current U.S. GAAP, the Company immediately expenses all selling expenses. The provisions of the new standard will require that the Company capitalize incremental selling expenses such as commissions and bonuses paid to the salesforce for obtaining contracts with new clients and/or selling additional business to current clients. These capitalized expenses will be amortized over the expected client life. While the Company grows, the impact of deferring and amortizing additional costs creates higher overall pre-tax income, net earnings, and earnings per share, when compared to current U.S. GAAP. The Company does not expect the provisions of the new standard to materially impact the timing or amount of revenue it recognizes.
The Company has not yet determined the impacts of all the disclosure requirements and specifically is assessing the manner in which it will disaggregate its revenue to illustrate how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Additionally, while the Company is in the process of assessing its accounting and
forecasting processes to ensure its ability to record, report, forecast, and analyze results under the new standard, it is not expecting significant changes to its business processes or systems.
NOTE 2. ACQUISITIONS
The Company acquired two businesses during fiscal 2017 for total upfront cash consideration of approximately $90.0 million and contingent consideration of up to $35.0 million, which is payable over the next three years, subject to the achievement of specified financial metrics and/or other conditions. The Company determined the fair value of the contingent consideration on the acquisition date using various estimates that are not observable in the market and represent a Level 3 measurement within the fair value hierarchy. The acquisitions were not material to the Company's results of operations, financial position, or cash flows and, therefore, the pro forma impact of these acquisitions is not presented. The results of the acquisitions are reported within the Company’s Employer Services segment. As of June 30, 2017, the Company had not yet finalized the purchase price allocation for these two acquisitions.
NOTE 3. DIVESTITURES
A. Dispositions
On November 28, 2016, the Company completed the sale of its Consumer Health Spending Account ("CHSA") and Consolidated Omnibus Reconciliation Act ("COBRA") businesses for a pre-tax gain of $205.4 million, and recorded such gain within Other income, net on the Statements of Consolidated Earnings. The historical results of operations of these businesses are included in the Employer Services segment.
On September 1, 2015, the Company completed the sale of its AMD business for a pre-tax gain of $29.1 million, less costs to sell, and recorded such gain within Other income, net on the Statements of Consolidated Earnings. The historical results of operations of this business are included in the Other segment.
The Company determined that the CHSA, COBRA and AMD divestitures did not meet the criteria for reporting discontinued operations under ASU 2014-092014-08 as the disposition of these businesses does not represent a strategic shift that has a major effect on the Company's operations or financial results.
B. Discontinued Operations
On June 26, 2015, the Company completed the sale of its consolidatedProcure-to-Pay business ("P2P") for a pre-tax gain of $100.9 million, less costs to sell, and recorded such gain within earnings from discontinued operations on the Statements of Consolidated Earnings.
On September 30, 2014, the Company completed the tax free spin-off of its former Dealer Services business, which was a separate reportable segment, into an independent publicly traded company called CDK Global, Inc. ("CDK"). As a result of the spin-off, ADP stockholders of record on September 24, 2014 (the "record date") received one share of CDK common stock on September 30, 2014, par value $0.01 per share, for every three shares of ADP common stock held by them on the record date and cash for any fractional shares of CDK common stock. ADP distributed approximately 160.6 million shares of CDK common stock in the distribution. During the first quarter of fiscal 2016, the Company became aware that 1.0 million of the 160.6 million shares of CDK stock distributed at the distribution date were inadvertently issued and distributed with respect to certain unvested Company equity awards. The 1.0 million shares were canceled during the first quarter of fiscal 2016. Such shares distributed as part of the spin-off did not have any impact to previously reported results of operations, financial condition, or cash flows. The spin-off was made without the payment of any consideration or the exchange of any shares by ADP stockholders. The spin-off, transitional, and on-going relationships between ADP and CDK are governed by the Separation and Distribution Agreement entered into between ADP and CDK and certain other ancillary agreements.
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. The impact of ASU 2014-08 is dependent upon the nature of dispositions, if any, after adoption.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 requires netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax position. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective adoption is permitted. The adoption of ASU 2013-11 will not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
In July 2013, the Company adopted ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires entities to disclose the amount of income (loss) reclassified out of accumulated other comprehensive income to each respective line item on the income statement. The guidance allows companies to elect whether to disclose the reclassification either on the face of the income statement or in the notes to the financial statements, including cross-referencing other disclosures which provide additional details about these amounts. The Company has elected to disclose the reclassification in the notes to the financial statements with cross-references to other disclosures which provide additional details about the amounts. The adoption of ASU 2013-02 did not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
NOTE 2. SEPARATION OF DEALER SERVICES
On April 10, 2014, the Company announced that its Board of Directors approved a plan to spin-off the Company’s Dealer Services business into an independently publicly-traded company through a tax-free spin-off of 100% of Dealer Services to ADP shareholders. The Company has requested an opinion from Paul, Weiss, Rifkind, Wharton & Garrison LLP, its counsel, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the request, the distribution will qualify as a transaction that is tax-free under Section 355 and other related provisions of the Internal Revenue Code. The distribution is conditioned upon, among other things, the receipt by the Company of such a favorable opinion of counsel confirming the distribution’s tax-free status. The separation is subject to other conditions, including necessary regulatory approvals. ADP has also requested rulings from the IRS and other jurisdictions with respect to certain discrete and significant issues arising in connection with the transactions being effected in connection with the separation and distribution.
On June 10, 2014, Dealer Services (under the name of “Dealer Services Holdings LLC”) filed a registration statement on Form 10 with the Securities and Exchange Commission. Additionally, Dealer Services Holdings LLC filed an amendment to its Form 10 on July 25, 2014. The financial presentation of Dealer Services in the Form 10 differs from the financial presentation of the Dealer Services segment in ADP’s financial statements due to adjustments made in the Form 10 to reflect the additional corporate expenses and other operating costs of Dealer Services as if it were a stand-alone company.
Upon completion of the spin-off, ADP shareholders will have separate ownership interests in ADP and Dealer Services. ADP and Dealer Services will be two distinct businesses with separate ownership and management. To facilitate Dealer Services’ separation from ADP, ADP will provide certain services to Dealer Services during a transition period following completion of the spin-off. ADP expects to incur approximately $40.0 million to $50.0 million of incremental separation costs during the fiscal year ended June 30, 2015 ("fiscal 2015") related to the spin-off. Incremental costs associated with the spin-off of $14.9CDK and divestiture of P2P of $50.1 million for fiscal 20142015 are included in separation costsdiscontinued operations on the Statements of Consolidated Earnings and are principally related to professional services.Earnings.
Results for discontinued operations were as follows. There were no results from discontinued operations in fiscal 2017.
|
| | | | | | | | |
| Years ended June 30, | | 2016 | | 2015 |
| Revenues | | $ | — |
| | $ | 538.8 |
|
| | | | | |
| Earnings from discontinued operations before income taxes | | — |
| | 69.2 |
|
| Provision for income taxes | | — |
| | 71.6 |
|
Net loss from discontinued operations before gain on disposal of discontinued operations | | — |
| | (2.4 | ) |
| | | | | |
| Gain on disposal of discontinued operations, less costs to sell | | (1.4 | ) | | 102.3 |
|
| (Benefit) / provision for income taxes | | (0.5 | ) | | 23.9 |
|
| Net gain on disposal of discontinued operations | | (0.9 | ) | | 78.4 |
|
| | | | | |
| Net (loss) / earnings from discontinued operations | | $ | (0.9 | ) | | $ | 76.0 |
|
NOTE 4. SERVICE ALIGNMENT INITIATIVE
On July 28, 2016, the Company announced a Service Alignment Initiative that is intended to simplify the Company's service organization by aligning the Company's service operations to its strategic platforms and locations. In fiscal 2016, the Company entered into leases in Norfolk, Virginia and Maitland, Florida, and in October 2016, the Company entered into a lease in Tempe, Arizona as part of this effort. The Company began incurring charges for this initiative during the first quarter of the fiscal year and expects to continue to incur charges through the year ended June 30, 2018 ("fiscal 2018") as the initiative is executed. The charges primarily relate to employee separation benefits recognized under ASC 712, and also include charges for the relocation of certain current Company employees, lease termination costs, and accelerated depreciation of fixed assets. The Company expects to recognize pre-tax restructuring charges of about $30 million in fiscal 2018, consisting primarily of cash expenditures for employee separation benefits.
The table below summarizes the composition of the Company's Service Alignment Initiative charges: |
| | | | | | | | |
| | | Year Ended | | Cumulative amount from inception through |
| | | June 30, | | June 30, |
| | | 2017 | | 2017 |
| Employee separation benefits (a) | | $ | 84.1 |
| | $ | 84.1 |
|
| Other initiative costs (b) | | 5.9 |
| | 5.9 |
|
| Total (c) | | $ | 90.0 |
| | $ | 90.0 |
|
(a) Charges are recorded in selling, general and administrative expenses on the Statements of Consolidated Earnings.
(b) Other initiative costs include costs to relocate certain current Company employees to new locations, lease termination charges (both included within selling, general and administrative expenses on the Statements of Consolidated Earnings), and accelerated depreciation on fixed assets (included within depreciation and amortization on the Statements of Consolidated Earnings).
(c) All charges are included within the Other segment.
Activity for the Service Alignment Initiative liability for fiscal 2017 was as follows:
|
| | | | | | | | | | | |
| | Employee separation benefits | | Other initiative costs | | Total |
| Balance at June 30, 2016 | $ | — |
| | $ | — |
| | $ | — |
|
| Charged to expense | 85.6 |
| | 5.9 |
| | 91.5 |
|
| Reversals | (1.5 | ) | | — |
| | (1.5 | ) |
| Cash payments | (10.2 | ) | | (3.4 | ) | | (13.6 | ) |
| Non-cash utilization | — |
| | (2.0 | ) | | (2.0 | ) |
| Balance at June 30, 2017 | $ | 73.9 |
| | $ | 0.5 |
| | $ | 74.4 |
|
NOTE 3.5. OTHER INCOME, NET
Other income, net consists of the following:
|
| | | | | | | | | | | | |
| Years ended June 30, | | 2014 | | 2013 | | 2012 |
| Interest income on corporate funds | | $ | (56.2 | ) | | $ | (64.5 | ) | | $ | (85.2 | ) |
| Realized gains on available-for-sale securities | | (20.4 | ) | | (32.1 | ) | | (32.1 | ) |
| Realized losses on available-for-sale securities | | 3.9 |
| | 3.5 |
| | 7.7 |
|
| Impairment losses on available-for-sale securities | | — |
| | — |
| | 5.8 |
|
| Impairment losses on assets held for sale | | — |
| | — |
| | 2.2 |
|
| Gains on sales of buildings | | — |
| | (2.2 | ) | | — |
|
| Gain on sale of assets | | — |
| | — |
| | (66.0 | ) |
| Other, net | | (0.2 | ) | | (0.9 | ) | | (3.2 | ) |
| Other income, net | | $ | (72.9 | ) | | $ | (96.2 | ) | | $ | (170.8 | ) |
During fiscal 2013, the Company completed the sale of two buildings that were previously classified as assets held for sale on the Consolidated Balance Sheets and, as a result, recorded gains of $2.2 million in other income, net, on the Statements of Consolidated Earnings. |
| | | | | | | | | | | | |
| Years ended June 30, | | 2017 | | 2016 | | 2015 |
| Interest income on corporate funds | | $ | (76.7 | ) | | $ | (62.4 | ) | | $ | (56.9 | ) |
| Realized gains on available-for-sale securities | | (5.3 | ) | | (5.1 | ) | | (6.8 | ) |
| Realized losses on available-for-sale securities | | 3.1 |
| | 10.1 |
| | 1.9 |
|
| Gain on sale of notes receivable | | — |
| | — |
| | (1.4 | ) |
| Gain on sale of businesses (see Note 3) | | (205.4 | ) | | (29.1 | ) | | — |
|
| Gain on sale of building | | — |
| | (13.9 | ) | | — |
|
| Other income, net | | $ | (284.3 | ) | | $ | (100.4 | ) | | $ | (63.2 | ) |
During fiscal 2012,2016, the Company sold assets related to rights and obligations to resell a third-party expense management platform,building and, as a result, recorded a gain of $66.0$13.9 million in other income, net, on the Statements of Consolidated Earnings.
During fiscal 2012, the Company completed the sale of two buildings for their combined carrying value of $6.9 million, net of selling costs. The Company had previously classified these assets as assets held for sale on the Consolidated Balance Sheets and recognized impairment losses within other income, net on the Statements of Consolidated Earnings of $2.2 million in fiscal 2012.
During fiscal 2012, the Company concluded that it had the intent to sell certain available-for-sale securities with unrealized losses of $5.8 million. As such, the Company recorded an impairment charge of $5.8 million in otherOther income, net, on the Statements of Consolidated Earnings.
NOTE 4. ACQUISITIONS
Assets acquired and liabilities assumed in business combinations were 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 byDuring fiscal 2015, the Company have been 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 was allocatedsold notes receivable related 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 periodDealer Services financing arrangements for such purchase price allocations will end when the information, or the facts and circumstances, becomes available, but will not exceed twelve months.
The Company acquired two businesses during fiscal 2014 for approximately $28.5 million, net of cash acquired. As of June 30, 2014, the Company had not yet finalized the purchase price allocations for these two acquisitions.
The Company acquired two businesses during fiscal 2013 for approximately $40.4 million, net of cash acquired. The Company finalized the purchase price allocation for these two acquisitions during fiscal 2014 and adjusted the preliminary values allocated to certain assets and liabilities in order to reflect final information received.
The Company acquired seven businesses in fiscal 2012 for an aggregate purchase price of approximately $292.3 million, net of cash acquired. These acquisitions resulted in approximately $182.6 million of goodwill. Intangible assets acquired, which total approximately $90.0 million for these seven acquisitions, included customer contracts and lists, software, and trademarks that are being amortized over a weighted average life of approximately 11 years.
The Company reviews estimates of the fair value of contingent consideration ("earn-out") expected to be paid in the event that certain performance metrics are achieved over an earn-out period and makes adjustments when facts and circumstances warrant. The Company made contingent payments relating to previously consummated acquisitions of $3.5 million, $14.5 million, and $2.8 million during fiscal 2014, 2013, and 2012.
The acquisitions discussed above for fiscal 2014, 2013, and 2012 were not material, either individually or in the aggregate, to the Company's operations, financial position, or cash flows.
NOTE 5. DIVESTITURES
On February 28, 2014, the Company completed$226.7 million. Although the sale of its Occupational Health and Safety services business ("OHS")the notes receivable transfers the majority of the risk to the purchaser, the Company does retain a minimal level of credit risk on the sold receivables. The cash received in exchange for a pre-tax gain of $15.6 million, less costs to sell, andthe notes receivable sold was recorded such gain within earnings from discontinued operationsthe operating activities on the Statements of Consolidated Earnings. In connection withCash Flows and the disposal of OHS, the Company classified the results of this business as discontinued operations for all periods presented. OHS was previously reported in the Employer Services segment.
On December 17, 2012, the Company completed thegain on sale of its Taxware Enterprise Service business ("Taxware") for a pre-tax gain of $58.8$1.4 million less costs to sell, andwas recorded such gain within earnings from discontinued operationsOther income, net on the Statements of Consolidated Earnings. In connection with the disposal of Taxware, the Company has classified the results of this business as discontinued operations for all periods presented. Taxware was previously reported in the Employer Services segment.
Operating results for discontinued operations were as follows:
|
| | | | | | | | | | | | |
| Years ended June 30, | | 2014 | | 2013 | | 2012 |
| Revenues | | $ | 13.0 |
| | $ | 46.3 |
| | $ | 69.8 |
|
| | | | | | | |
| Earnings from discontinued operations before income taxes | | 3.9 |
| | 16.2 |
| | 20.4 |
|
| Provision for income taxes | | 1.1 |
| | 5.2 |
| | 7.1 |
|
Net earnings from discontinued operations before gain on disposal of discontinued operations | | 2.8 |
| | 11.0 |
| | 13.3 |
|
| | | | | | | |
| Gain on disposal of discontinued operations, less costs to sell | | 15.6 |
| | 58.8 |
| | — |
|
| Provision for income taxes | | 5.1 |
| | 22.1 |
| | — |
|
| Net gain on disposal of discontinued operations | | 10.5 |
| | 36.7 |
| | — |
|
| | | | | | | |
| Net earnings from discontinued operations | | $ | 13.3 |
| | $ | 47.7 |
| | $ | 13.3 |
|
There were no assets or liabilities of discontinued operations as of June 30, 2014. The following are the major classes of assets and liabilities related to the discontinued operations as of June 30, 2013.
|
| | | |
| | June 30, 2013 |
| Assets: | |
| Accounts receivable, net | $ | 3.0 |
|
| Goodwill | 13.4 |
|
| Other assets | 0.3 |
|
| | |
| Total assets | $ | 16.7 |
|
| | |
| Liabilities: | |
| Accounts payable | $ | 0.8 |
|
| Accrued expenses and other current liabilities | 0.3 |
|
| Accrued payroll and payroll related expenses | 0.8 |
|
| Deferred revenues | 1.8 |
|
| Income taxes payable | 0.5 |
|
| | |
| Total liabilities | $ | 4.2 |
|
NOTE 6. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS
Corporate investments and funds held for clients at June 30, 20142017 and 20132016 were as follows:
| | | | June 30, 2014 | June 30, 2017 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (A) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (A) |
| Type of issue: | | | | | | | | | | | | | | |
| Money market securities and other cash equivalents | $ | 3,171.4 |
| | $ | — |
| | $ | — |
| | $ | 3,171.4 |
| $ | 8,181.6 |
| | $ | — |
| | $ | — |
| | $ | 8,181.6 |
|
| Available-for-sale securities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Corporate bonds | 8,720.1 |
| | 171.1 |
| | (15.0 | ) | | 8,876.2 |
| 9,325.3 |
| | 98.8 |
| | (22.0 | ) | | 9,402.1 |
|
U.S. Treasury and direct obligations of U.S. government agencies | 6,051.4 |
| | 107.3 |
| | (11.7 | ) | | 6,147.0 |
| |
| U.S. government agency securities | | 3,557.7 |
| | 22.2 |
| | (13.4 | ) | | 3,566.5 |
|
| Asset-backed securities | 1,822.6 |
| | 6.1 |
| | (6.9 | ) | | 1,821.8 |
| 4,453.1 |
| | 16.9 |
| | (8.6 | ) | | 4,461.4 |
|
Canadian government obligations and
Canadian government agency obligations | 1,031.4 |
| | 7.6 |
| | (0.8 | ) | | 1,038.2 |
| |
Canadian government securities and
Canadian government agency securities | | 1,053.6 |
| | 2.9 |
| | (11.4 | ) | | 1,045.1 |
|
| Canadian provincial bonds | 747.7 |
| | 25.3 |
| | (2.5 | ) | | 770.5 |
| 746.9 |
| | 14.3 |
| | (1.4 | ) | | 759.8 |
|
| U.S. Treasury securities | | 1,585.9 |
| | 2.6 |
| | (14.3 | ) | | 1,574.2 |
|
| Municipal bonds | 543.3 |
| | 19.4 |
| | (0.5 | ) | | 562.2 |
| 582.5 |
| | 11.3 |
| | (1.3 | ) | | 592.5 |
|
| Other securities | 915.6 |
| | 25.7 |
| | (0.7 | ) | | 940.6 |
| 493.6 |
| | 7.3 |
| | (1.4 | ) | | 499.5 |
|
| | | | | | | | | | | | | | | |
| Total available-for-sale securities | 19,832.1 |
| | 362.5 |
| | (38.1 | ) | | 20,156.5 |
| 21,798.6 |
| | 176.3 |
| | (73.8 | ) | | 21,901.1 |
|
| | | | | | | | | | | | | | | |
| Total corporate investments and funds held for clients | $ | 23,003.5 |
| | $ | 362.5 |
| | $ | (38.1 | ) | | $ | 23,327.9 |
| $ | 29,980.2 |
| | $ | 176.3 |
| | $ | (73.8 | ) | | $ | 30,082.7 |
|
(A) Included within available-for-sale securities are corporate investments with fair values of $2,086.310.8 million and funds held for clients with fair values of $18,070.221,890.3 million. All available-for-sale securities were included in Level 2.
| | | | June 30, 2013 | June 30, 2016 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (B) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (B) |
| Type of issue: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Money market securities and other cash equivalents | $ | 5,431.2 |
| | $ | — |
| | $ | — |
| | $ | 5,431.2 |
| $ | 15,458.6 |
| | $ | — |
| | $ | — |
| | $ | 15,458.6 |
|
| Available-for-sale securities: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Corporate bonds | 7,868.3 |
| | 166.2 |
| | (56.7 | ) | | 7,977.8 |
| 9,429.2 |
| | 261.8 |
| | (0.6 | ) | | 9,690.4 |
|
U.S. Treasury and direct obligations of U.S. government agencies | 5,983.7 |
| | 152.6 |
| | (37.4 | ) | | 6,098.9 |
| |
| U.S. government agency securities | | 4,298.8 |
| | 91.3 |
| | — |
| | 4,390.1 |
|
| Asset-backed securities | 1,374.1 |
| | 5.3 |
| | (19.7 | ) | | 1,359.7 |
| 3,761.9 |
| | 59.0 |
| | (0.3 | ) | | 3,820.6 |
|
Canadian government obligations and
Canadian government agency obligations | 998.2 |
| | 10.7 |
| | (4.5 | ) | | 1,004.4 |
| |
Canadian government securities and
Canadian government agency securities | | 995.1 |
| | 12.8 |
| | — |
| | 1,007.9 |
|
| Canadian provincial bonds | 695.7 |
| | 20.7 |
| | (5.6 | ) | | 710.8 |
| 735.4 |
| | 30.8 |
| | (0.1 | ) | | 766.1 |
|
| U.S. Treasury securities | | 746.9 |
| | 16.3 |
| | — |
| | 763.2 |
|
| Municipal bonds | 536.9 |
| | 16.7 |
| | (4.4 | ) | | 549.2 |
| 594.2 |
| | 23.9 |
| | (0.3 | ) | | 617.8 |
|
| Other securities | 1,094.4 |
| | 46.3 |
| | (2.8 | ) | | 1,137.9 |
| 533.3 |
| | 15.8 |
| | (0.2 | ) | | 548.9 |
|
| | | | | | | | | | | | | | | |
| Total available-for-sale securities | 18,551.3 |
| | 418.5 |
| | (131.1 | ) | | 18,838.7 |
| 21,094.8 |
| | 511.7 |
| | (1.5 | ) | | 21,605.0 |
|
| | | | | | | | | | | | | | | |
| Total corporate investments and funds held for clients | $ | 23,982.5 |
| | $ | 418.5 |
| | $ | (131.1 | ) | | $ | 24,269.9 |
| $ | 36,553.4 |
| | $ | 511.7 |
| | $ | (1.5 | ) | | $ | 37,063.6 |
|
(B) Included within available-for-sale securities are corporate investments with fair values of $342.031.3 million and funds held for clients with fair values of $18,496.721,573.7 million. At June 30, 2013 Level 1 securities included $9.5 million of corporate investments classified within "Other securities," all remainingAll available-for-sale securities were included in Level 2.
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".Policies." The Company did not transfer any assets
between Levels during the years ended June 30, 2014fiscal 2017 or 2013.2016. In addition, the Company did not adjust the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 1 or Level 3 as of June 30, 2014.2017.
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, 2014,2017, are as follows:
| | | | June 30, 2014 | June 30, 2017 |
| | Securities in unrealized loss position less than 12 months | | Securities in unrealized loss position greater than 12 months | | Total | Securities in unrealized loss position less than 12 months | | Securities in unrealized loss position greater than 12 months | | Total |
| | Unrealized
losses | | Fair market
value | | Unrealized
losses | | Fair market
value | | Gross
unrealized
losses | | Fair
market value | Unrealized
losses | | Fair market
value | | Unrealized
losses | | Fair market
value | | Gross
unrealized
losses | | Fair
market value |
| Corporate bonds | $ | (0.9 | ) | | $ | 313.8 |
| | $ | (14.1 | ) | | $ | 1,026.0 |
| | $ | (15.0 | ) | | $ | 1,339.8 |
| $ | (22.0 | ) | | $ | 2,619.9 |
| | $ | — |
| | $ | 7.4 |
| | $ | (22.0 | ) | | $ | 2,627.3 |
|
U.S. Treasury and direct obligations of U.S. government agencies | (0.3 | ) | | 84.6 |
| | (11.4 | ) | | 944.8 |
| | (11.7 | ) | | 1,029.4 |
| |
| U.S. government agency securities | | (13.4 | ) | | 1,935.3 |
| | — |
| | — |
| | (13.4 | ) | | 1,935.3 |
|
| Asset-backed securities | (0.7 | ) | | 325.4 |
| | (6.2 | ) | | 555.5 |
| | (6.9 | ) | | 880.9 |
| (8.5 | ) | | 1,916.1 |
| | (0.1 | ) | | 11.3 |
| | (8.6 | ) | | 1,927.4 |
|
Canadian government obligations and
Canadian government agency obligations | (0.8 | ) | | 127.2 |
| | — |
| | — |
| | (0.8 | ) | | 127.2 |
| |
Canadian government securities and
Canadian government agency securities | | (11.4 | ) | | 699.6 |
| | — |
| | — |
| | (11.4 | ) | | 699.6 |
|
| Canadian provincial bonds | (0.9 | ) | | 75.2 |
| | (1.6 | ) | | 118.6 |
| | (2.5 | ) | | 193.8 |
| (1.4 | ) | | 179.8 |
| | — |
| | — |
| | (1.4 | ) | | 179.8 |
|
| U.S. Treasury securities | | (14.3 | ) | | 1,317.8 |
| | — |
| | 1.0 |
| | (14.3 | ) | | 1,318.8 |
|
| Municipal bonds | (0.1 | ) | | 42.0 |
| | (0.4 | ) | | 22.6 |
| | (0.5 | ) | | 64.6 |
| (1.2 | ) | | 98.8 |
| | (0.1 | ) | | 1.2 |
| | (1.3 | ) | | 100.0 |
|
| Other securities | — |
| | 13.9 |
| | (0.7 | ) | | 45.7 |
| | (0.7 | ) | | 59.6 |
| (1.3 | ) | | 148.0 |
| | (0.1 | ) | | 8.9 |
| | (1.4 | ) | | 156.9 |
|
| | $ | (3.7 | ) | | $ | 982.1 |
| | $ | (34.4 | ) | | $ | 2,713.2 |
| | $ | (38.1 | ) | | $ | 3,695.3 |
| $ | (73.5 | ) | | $ | 8,915.3 |
| | $ | (0.3 | ) | | $ | 29.8 |
| | $ | (73.8 | ) | | $ | 8,945.1 |
|
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, 20132016 are as follows:
| | | | June 30, 2013 | June 30, 2016 |
| | Securities in unrealized loss position less than 12 months | | Securities in unrealized loss position greater than 12 months | | Total | Securities in unrealized loss position less than 12 months | | Securities in unrealized loss position greater than 12 months | | Total |
| | Unrealized
losses | | Fair market
value | | Unrealized
losses | | Fair market
value | | Gross
unrealized
losses | | Fair
market value | Unrealized
losses | | Fair market
value | | Unrealized
losses | | Fair market
value | | Gross
unrealized
losses | | Fair
market value |
| Corporate bonds | $ | (56.7 | ) | | $ | 2,724.9 |
| | $ | — |
| | $ | — |
| | $ | (56.7 | ) | | $ | 2,724.9 |
| $ | (0.5 | ) | | $ | 138.0 |
| | $ | (0.1 | ) | | $ | 35.1 |
| | $ | (0.6 | ) | | $ | 173.1 |
|
| U.S. Treasury and direct obligations of U.S. government agencies | (37.4 | ) | | 1,374.6 |
| | — |
| | — |
| | (37.4 | ) | | 1,374.6 |
| |
| U.S. government agency securities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Asset-backed securities | (19.7 | ) | | 1,060.1 |
| | — |
| | — |
| | (19.7 | ) | | 1,060.1 |
| (0.1 | ) | | 58.8 |
| | (0.2 | ) | | 154.8 |
| | (0.3 | ) | | 213.6 |
|
Canadian government obligations and
Canadian government agency obligations | (4.5 | ) | | 444.7 |
| | — |
| | — |
| | (4.5 | ) | | 444.7 |
| |
Canadian government securities and
Canadian government agency securities | | — |
| | 53.2 |
| | — |
| | — |
| | — |
| | 53.2 |
|
| Canadian provincial bonds | (5.6 | ) | | 239.7 |
| | — |
| | — |
| | (5.6 | ) | | 239.7 |
| (0.1 | ) | | 19.1 |
| | — |
| | 7.8 |
| | (0.1 | ) | | 26.9 |
|
| U.S. Treasury securities | | — |
| | 3.4 |
| | — |
| | 1.6 |
| | — |
| | 5.0 |
|
| Municipal bonds | (4.4 | ) | | 188.7 |
| | — |
| | — |
| | (4.4 | ) | | 188.7 |
| — |
| | 12.9 |
| | (0.3 | ) | | 10.6 |
| | (0.3 | ) | | 23.5 |
|
| Other securities | (2.8 | ) | | 109.3 |
| | — |
| | — |
| | (2.8 | ) | | 109.3 |
| (0.1 | ) | | 10.5 |
| | (0.1 | ) | | 8.0 |
| | (0.2 | ) | | 18.5 |
|
| | $ | (131.1 | ) | | $ | 6,142.0 |
| | $ | — |
| | $ | — |
| | $ | (131.1 | ) | | $ | 6,142.0 |
| $ | (0.8 | ) | | $ | 295.9 |
| | $ | (0.7 | ) | | $ | 217.9 |
| | $ | (1.5 | ) | | $ | 513.8 |
|
At June 30, 2014,2017, Corporate bonds include investment-grade debt securities, which include a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from July 20142017 to March 2026.
At June 2023. U.S. Treasury and direct obligations of30, 2017, U.S. government agenciesagency securities primarily include debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks with fair values of $4,456.02,554.7 million and $1,223.7803.2 million, respectively. U.S. Treasury and direct obligations of U.S. government agenciesagency 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 July 2014September 2017 through February 2024.2025.
At June 30, 2014,2017, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed ratefixed-rate credit card, auto loan, equipment lease and rate reduction receivables with fair values of $1,229.72,362.2 million, $364.91,428.3 million, $431.0 million, and $157.7$239.8 million,, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All collateral on such asset-backed securities has performed as expected through June 30, 2014.2017.
At June 30, 2014,2017, other securities and their fair value primarily represent: AAA and AA rated supranational bonds of $129.3 million, AAA and AAAAA rated sovereign bonds of $412.1$110.7 million,, AA and AAA rated supranational bonds of $375.5 million, AA rated mortgage-backed securities of $97.2$95.9 million, and AAA rated commercial mortgage-backed securities of $48.3 million that are guaranteed primarily by Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac"). The Company's mortgage-backed securities represent an undivided beneficial ownership interest in a group or pool of one or more residential mortgages. These securities are collateralized by the cash flows of 15-year and 30-year residential mortgages and are guaranteed by Fannie Mae and Freddie Mac as to the timely payment of principal and interest.
Classification of corporate investments on the Consolidated Balance Sheets is as follows:
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| Corporate investments: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,983.6 |
| | $ | 1,699.1 |
| | $ | 2,780.4 |
| | $ | 3,191.1 |
|
Short-term marketable securities | | 2,032.2 |
| | 28.0 |
| | 3.2 |
| | 23.5 |
|
Long-term marketable securities | | 54.1 |
| | 314.0 |
| | 7.6 |
| | 7.8 |
|
| Total corporate investments | | $ | 4,069.9 |
| | $ | 2,041.1 |
| | $ | 2,791.2 |
| | $ | 3,222.4 |
|
(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, | | 2014 | | 2013 | | 2017 | | 2016 |
| Funds held for clients: | | | | | | | | |
| Restricted cash and cash equivalents held to satisfy client funds obligations | | $ | 1,187.8 |
| | $ | 3,732.1 |
| | $ | 5,401.2 |
| | $ | 12,267.5 |
|
| Restricted short-term marketable securities held to satisfy client funds obligations | | 1,312.5 |
| | 1,407.7 |
| | 2,918.5 |
| | 3,032.1 |
|
| Restricted long-term marketable securities held to satisfy client funds obligations | | 16,757.7 |
| | 17,089.0 |
| | 18,971.8 |
| | 18,541.6 |
|
| Total funds held for clients | | $ | 19,258.0 |
| | $ | 22,228.8 |
| | $ | 27,291.5 |
| | $ | 33,841.2 |
|
Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll and tax 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 $18,963.427,189.4 million and $21,956.333,331.8 million as of June 30, 20142017 and June 30, 2013,2016, 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. 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 inflows and outflows related to client funds investments with original maturities of 90ninety days or less on a net basis within net increase in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations in the investing section of the Statements of Consolidated Cash Flows. 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 section of the Statements of Consolidated Cash Flows.
Approximately 82%79% of the available-for-sale securities held a AAA or AA rating at June 30, 2014,2017, as rated by Moody's, Standard & Poor's and, for Canadian securities, Dominion Bond Rating Service.DBRS. All available-for-sale securities were rated as investment grade at June 30, 2014.2017.
Expected maturities of available-for-sale securities at June 30, 20142017 are as follows:
|
| | | |
| Due in one year or less | $ | 3,344.6 |
|
| Due after one year to two years | 4,600.0 |
|
| Due after two years to three years | 3,282.1 |
|
| Due after three years to four years | 2,942.1 |
|
| Due after four years | 5,987.7 |
|
| | |
|
| Total available-for-sale securities | $ | 20,156.5 |
|
NOTE 7. RECEIVABLES |
| | | |
| Due in one year or less | $ | 2,921.7 |
|
| Due after one year to two years | 2,826.7 |
|
| Due after two years to three years | 5,144.5 |
|
| Due after three years to four years | 4,958.8 |
|
| Due after four years | 6,049.4 |
|
| | |
|
| Total available-for-sale securities | $ | 21,901.1 |
|
Accounts receivable, net, includes the Company's trade receivables, which are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts. The Company's receivables also include notes receivable for the financing of the sale of computer systems, primarily from auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment retailers and manufacturers. Notes receivable are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts and unearned income. The allowance for doubtful accounts is the Company's best estimate of probable credit losses related to trade receivables and notes receivable based upon the aging of the receivables, historical collection data, internal assessments of credit quality and the economic conditions in the automobile industry, as well as in the economy as a whole. The Company charges off uncollectable amounts against the reserve in the period in which it determines they are uncollectable. Unearned income on notes receivable is amortized using the effective interest method.
The Company’s receivables, whose carrying value approximates fair value, are as follows:
|
| | | | | | | | | | | | | | | |
| | June 30, 2014 | | June 30, 2013 |
| | Current | | Long-term | | Current | | Long-term |
| Trade receivables | $ | 1,767.3 |
| | $ | — |
| | $ | 1,561.1 |
| | $ | — |
|
| Notes receivable | 94.8 |
| | 169.9 |
| | 91.0 |
| | 154.7 |
|
| Less: | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts - trade receivables | (51.0 | ) | | — |
| | (44.9 | ) | | — |
|
| Allowance for doubtful accounts - notes receivable | (4.7 | ) | | (8.3 | ) | | (5.3 | ) | | (9.0 | ) |
| Unearned income - notes receivable | (6.0 | ) | | (6.2 | ) | | (6.6 | ) | | (7.0 | ) |
| | $ | 1,800.4 |
| | $ | 155.4 |
| | $ | 1,595.3 |
| | $ | 138.7 |
|
Long-term receivables at June 30, 2014 mature as follows:
|
| | | | |
| 2016 | | $ | 73.3 |
|
| 2017 | | $ | 52.6 |
|
| 2018 | | $ | 31.3 |
|
| 2019 | | $ | 12.7 |
|
| Total | | $ | 169.9 |
|
As of June 30, 2014, there are no notes receivable that are specifically reserved; the entire notes receivable reserve balance is comprised of non-specific reserves. As of June 30, 2013, the notes receivable balances with specific and non-specific reserves and the specific and non-specific reserves associated with those balances are as follows:
|
| | | | | | | | | | | | | | | |
| | June 30, 2013 |
| | Notes Receivable | | Reserve |
| | Current | | Long-term | | Current | | Long-term |
| Specifically reserved | $ | 0.3 |
| | $ | 0.5 |
| | $ | 0.3 |
| | $ | 0.5 |
|
| Non-specifically reserved | 90.7 |
| | 154.2 |
| | 5.0 |
| | 8.5 |
|
| | $ | 91.0 |
| | $ | 154.7 |
| | $ | 5.3 |
| | $ | 9.0 |
|
The rollforward of the allowance for doubtful accounts related to notes receivable is as follows:
|
| | | | | | | |
| | Current | | Long-term |
| Balance at June 30, 2012 | $ | 5.4 |
| | $ | 8.8 |
|
| Net incremental provision | 0.8 |
| | 1.2 |
|
| Recoveries | — |
| | 0.2 |
|
| Chargeoffs | (0.9 | ) | | (1.2 | ) |
| Balance at June 30, 2013 | $ | 5.3 |
| | $ | 9.0 |
|
| Net incremental provision | (0.1 | ) | | (0.1 | ) |
| Recoveries | 0.2 |
| | 0.2 |
|
| Chargeoffs | (0.7 | ) | | (0.8 | ) |
| Balance at June 30, 2014 | $ | 4.7 |
| | $ | 8.3 |
|
The allowance for doubtful accounts as a percentage of notes receivable was approximately 5% as of June 30, 2014 and 6% as of June 30, 2013.
On an ongoing basis, the Company evaluates the credit quality of its financing receivables, utilizing aging of receivables, collection experience and charge-offs. In addition, the Company evaluates economic conditions in the auto industry and specific dealership matters, such as bankruptcy. As events related to a specific client dictate, the credit quality of a client is reevaluated. Approximately 100% of notes receivable were current at June 30, 2014 and 2013.
NOTE 8.7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost and accumulated depreciation at June 30, 20142017 and 20132016 are as follows:
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | |
| Property, plant, and equipment: | | | | | | | | |
| Land and buildings | | $ | 749.2 |
| | $ | 731.7 |
| | $ | 778.1 |
| | $ | 745.7 |
|
| Data processing equipment | | 863.8 |
| | 849.5 |
| | 653.7 |
| | 605.0 |
|
| Furniture, leaseholds, and other | | 512.7 |
| | 459.5 |
| | 599.6 |
| | 490.1 |
|
| | | 2,125.7 |
| | 2,040.7 |
| | 2,031.4 |
| | 1,840.8 |
|
| Less: accumulated depreciation | | (1,348.3 | ) | | (1,312.1 | ) | | (1,251.5 | ) | | (1,155.8 | ) |
| Property, plant, and equipment, net | | $ | 777.4 |
| | $ | 728.6 |
| | $ | 779.9 |
| | $ | 685.0 |
|
Depreciation of property, plant and equipment was $163.2147.3 million, $149.9135.6 million, and $146.8127.2 million for fiscal 2014, 2013,2017, 2016, and 2012,2015, respectively.
NOTE 9.8. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in goodwill for the fiscal yearyears ended June 30, 20142017 and 20132016 are as follows:
|
| | | | | | | | | | | | | | | |
| | Employer Services | | PEO Services | | Dealer Services | | Total |
| Balance at June 30, 2012 | $ | 1,874.2 |
| | $ | 4.8 |
| | $ | 1,169.6 |
| | $ | 3,048.6 |
|
| Additions and other adjustments, net | 29.4 |
| | — |
| | 0.8 |
| | 30.2 |
|
| Currency translation adjustments | 4.5 |
| | — |
| | (1.4 | ) | | 3.1 |
|
| Goodwill impairment | (42.7 | ) | | — |
| | — |
| | (42.7 | ) |
| Balance at June 30, 2013 | $ | 1,865.4 |
| | $ | 4.8 |
| | $ | 1,169.0 |
| | $ | 3,039.2 |
|
| Additions and other adjustments, net | 0.3 |
| | — |
| | 23.8 |
| | 24.1 |
|
| Currency translation adjustments | 16.7 |
| | — |
| | 33.8 |
| | 50.5 |
|
| Balance at June 30, 2014 | $ | 1,882.4 |
| | $ | 4.8 |
| | $ | 1,226.6 |
| | $ | 3,113.8 |
|
In fiscal 2014, the Company performed the required annual impairment tests of goodwill and determined that there was no impairment. |
| | | | | | | | | | | | | | | |
| | Employer Services | | PEO Services | | Other | | Total |
| Balance at June 30, 2015 (A) | $ | 1,788.7 |
| | $ | 4.8 |
| | $ | — |
| | $ | 1,793.5 |
|
| Transfer of AMD goodwill | (100.4 | ) | | — |
| | 100.4 |
| | — |
|
| Currency translation adjustments | (11.1 | ) | | — |
| | — |
| | (11.1 | ) |
Disposition of AMD
| — |
| | — |
| | (100.4 | ) | | (100.4 | ) |
| Balance at June 30, 2016 | $ | 1,677.2 |
| | $ | 4.8 |
| | $ | — |
| | $ | 1,682.0 |
|
| Additions and other adjustments | 73.4 |
| | — |
| | — |
| | 73.4 |
|
| Currency translation adjustments | 7.0 |
| | — |
| | — |
| | 7.0 |
|
| Disposition of CHSA and COBRA businesses | (21.4 | ) | | — |
| | — |
| | (21.4 | ) |
| Balance at June 30, 2017 | $ | 1,736.2 |
| | $ | 4.8 |
| | $ | — |
| | $ | 1,741.0 |
|
During the fourth quarter(A) The goodwill balance at June 30, 2015 is net of fiscal 2013, the Company recorded anaccumulated impairment chargelosses of $42.7 million related to the ADP AdvancedMD reporting unit. The goodwill impairment was due to a decrease in the estimated fair value of the business resulting from a decline in the new business bookings growth and profitability projections of the business.
The remeasurement of goodwill is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using Company-specific information. The Company determined the fair value utilizing the income approach and the market approach. Under the income approach, the Company calculated the fair value based on the present value of the estimated cash flows. Cash flow projections were based on management's estimates of revenue growth rates and net operating income margins, taking into consideration market and industry conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the risk, size premium, and business specific characteristics related to the business's ability to execute on the projected cash flows. Under the market approach, the Company evaluated the fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. The unobservable inputs used to measure the fair value included 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.
In fiscal 2013, since the annual impairment test indicated that ADP AdvancedMD's carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test ("Step 2") was performed specific to this business. Under Step 2, the fair values of all assets and liabilities were estimated, including tangible assets, existing technology, customer lists, and trademarks for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of impairment. Assumptions used in measuring the value of these assets and liabilities included the discount rates, royalty rates, and attrition rates used in valuing the intangible assets. Upon completion of the annual test, the ADP AdvancedMD reporting unit was determined to be impaired. ADP AdvancedMD is currently reported in our Employer Services segment.
There were no accumulated goodwill impairments as of June 30, 2012.
Components of intangible assets, net, are as follows:
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | |
| Intangible assets: | | | | | | | | |
| Software and software licenses | | $ | 1,626.9 |
| | $ | 1,511.1 |
| | $ | 1,975.2 |
| | $ | 1,811.6 |
|
| Customer contracts and lists | | 870.1 |
| | 848.9 |
| | 614.1 |
| | 603.7 |
|
| Other intangibles | | 241.4 |
| | 241.7 |
| | 228.2 |
| | 207.8 |
|
| | | 2,738.4 |
| | 2,601.7 |
| | 2,817.5 |
| | 2,623.1 |
|
| Less accumulated amortization: | | |
| | |
| | |
| | |
|
| Software and software licenses | | (1,318.4 | ) | | (1,239.5 | ) | | (1,483.7 | ) | | (1,403.8 | ) |
| Customer contracts and lists | | (591.2 | ) | | (534.3 | ) | | (506.0 | ) | | (486.4 | ) |
| Other intangibles | | (196.5 | ) | | (184.7 | ) | | (207.6 | ) | | (198.7 | ) |
| | | (2,106.1 | ) | | (1,958.5 | ) | | (2,197.3 | ) | | (2,088.9 | ) |
| | | | | | |
| Intangible assets, net | | $ | 632.3 |
| | $ | 643.2 |
| | $ | 620.2 |
| | $ | 534.2 |
|
Other intangibles consist primarily of purchased rights, covenants, patents,purchased content, trademarks and trademarkstradenames (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 75 years (4 years for software and software licenses, 98 years for customer contracts and lists, and 76 years for other intangibles). Amortization of intangible assets was $173.0168.8 million, $166.8$153.0 million,, and $172.5$150.7 million for fiscal 2014, 2013,2017, 2016, and 2012,2015, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
|
| | | |
| | Amount |
| Twelve months ending June 30, 2015 | $ | 162.9 |
|
| Twelve months ending June 30, 2016 | $ | 132.4 |
|
| Twelve months ending June 30, 2017 | $ | 96.6 |
|
| Twelve months ending June 30, 2018 | $ | 56.8 |
|
| Twelve months ending June 30, 2019 | $ | 45.1 |
|
|
| | | |
| | Amount |
| Twelve months ending June 30, 2018 | $ | 178.6 |
|
| Twelve months ending June 30, 2019 | $ | 141.6 |
|
| Twelve months ending June 30, 2020 | $ | 110.7 |
|
| Twelve months ending June 30, 2021 | $ | 80.7 |
|
| Twelve months ending June 30, 2022 | $ | 67.5 |
|
NOTE 10.9. SHORT TERM FINANCING
The Company has a $2.25$3.50 billion,, 364-day 364-day credit agreement that matures June 2018 with a group of lendersone year term-out option. The Company also has a $2.25 billion five-year credit facility that matures in June 2015.2022 that also contains an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments. In addition, the Company has a five-year $3.25$3.75 billion credit facility maturing in June 20192021 that contains an accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. The Company also has an existing $2.0 billionfive-year credit facility that matures in June 2018 that also contains an accordion feature under which the aggregate commitment can be increased by $500.0500 million, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the effective federal funds rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The Company had no borrowings through June 30, 20142017 and 2016 under the credit agreements.
The Company’sOur U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through a commercial paper program, which provides for the issuance of up to $7.25 billion in aggregate maturity value of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. In July 2014,During the majority of fiscal 2017, this commercial paper program provided for the issuance of up to $9.25 billion in aggregate maturity value; in June 2017, the Company increased theits U.S. short-term commercial paper program to provide for the issuance of up to $7.5$9.5 billion in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At June 30, 2014, the Company had $2,173.0 million of commercial paper outstanding, which was subsequently repaid on July 1, 2014. At June 30, 2013,2017 and 2016, the Company had no commercial paper outstanding. In fiscal 20142017 and 2013,2016, the Company's average daily borrowings were $2.3$3.1 billion and $2.4$2.7 billion,, respectively, at a weighted average interest ratesrate of 0.1%0.6% and 0.2%0.3%, respectively. The weighted average maturity of the Company’s commercial paper in fiscal 20142017 and 2013 approximated 22016 was approximately two days.
The Company’s U.S. and Canadian 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.days. At June 30, 2014,2017 and 2016, there were no outstanding obligations related to the reverse repurchase agreements. At June 30, 2013, the Company had $245.9 million of obligations outstanding related to reverse repurchase agreements, which were subsequently repaid on July 2, 2013. In fiscal 20142017 and 2013,2016, the Company had average outstanding balances under reverse repurchase agreements of $361.7$274.8 million and $362.0$341.0 million,, respectively, at weighted average interest rates of 0.5%0.6% and 0.7%0.4%, respectively.
NOTE 10. LONG TERM DEBT
In addition,September 2015, the Company has $3.25 billion available on a committed basis under the U.S. reverse repurchase agreements.issued fixed-rate notes with 5-year and 10-year maturities for an aggregate principal amount of $2.0 billion. 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, 2017 and 2016 are as follows:
|
| | | | | | | | | | |
| Debt instrument | | Effective Interest Rate
| | June 30, 2017 | | June 30, 2016 |
| Fixed-rate 2.250% notes due September 15, 2020 | | 2.37% | | $ | 1,000.0 |
| | $ | 1,000.0 |
|
| Fixed-rate 3.375% notes due September 15, 2025 | | 3.47% | | 1,000.0 |
| | 1,000.0 |
|
| Other | | | | 20.3 |
| | 22.3 |
|
| | | | | 2,020.3 |
| | 2,022.3 |
|
| Less: current portion | | | | (7.8 | ) | | (2.5 | ) |
| Less: unamortized discount and debt issuance costs | | | | (10.1 | ) | | (12.1 | ) |
| Total long-term debt | | | | $ | 2,002.4 |
| | $ | 2,007.7 |
|
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, 2017, the fair value of the Notes, based on level 2 inputs, was $2,051.6 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 11. EMPLOYEE BENEFIT PLANS
A. Stock-based Compensation Plans. Stock-based compensation consists of the following:
Stock Options. Stock options are granted to employees at exercise prices equal to the fair market value of the Company's common stock on the dates of grant. Stock options are issued under a graded vesting schedule and have a term of 10 years. Options granted prior to July 1, 2008 generally vest ratably over five years and options granted after July 1, 2008 generally vest ratably over four years.years. Compensation expense is measured based on the fair value of the stock option on the grant date and recognized over the requisite service period for each separately vesting portion of the stock option award. Stock options are forfeited if the employee ceases to be employed by the Company prior to vesting.
Restricted Stock.
Time-Based Restricted Stock and Time-Based Restricted Stock Units. Time-based restricted stock and time-based restricted stock units granted prior to fiscal 2013 are subject to vesting periods of up to five years and awards granted in fiscal 2013 and later aregenerally subject to a vesting period of two years. Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.
Time-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. EmployeesDividends are eligible to receive dividendspaid on shares awarded under the time-based restricted stock program.
Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock units is recorded over the
vesting period and is initially based on the fair value of the award on the grant date;date and is subsequently remeasured at each reporting date during the vesting period.period based on the change in the ADP stock price. No dividend equivalents are paid on units awarded under the time-based restricted stock unit program.
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units. Performance-based restricted stock and performance-based restricted stock units generally vest over a one to three year performance period and a subsequent service period of up to 26 months. Under these programs, the Company communicates "target awards" at the beginning of the performance period with possible payouts at the end of the performance period ranging from 0% to 150% of the "target awards." Awards are generally forfeited if the employee ceases to be employed by the Company prior to vesting.
Performance-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock is measuredrecognized over the vesting period based uponon the fair value of the award on the grant date and recognized on a straight-line basis overwith subsequent adjustments to the vestingnumber of shares awarded during the performance period based upon the probability that theon probable and actual performance target will be met.against targets. After the performance period, if the performance targets are achieved, employees are eligible to receive dividends during the remaining vesting period on shares awarded under the performance-based restricted stock program.
Performance-based restricted stock units cannot be transferred and are settled in either cash or stock, depending on the employee's home country, and cannot be transferred during the vesting period.country. Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recordedrecognized over the vesting period and is 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 subsequently remeasured at each reporting dateperiod during the one-year performancevesting period based uponon the probability thatchange in the performance target will be met.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.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 settled in stock under the performance-based restricted stock unit program.
Employee Stock Purchase Plan. The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to 95% of the market value for the Company's common stock on the last day of the offering period. This plan has been deemed non-compensatory and, therefore, no compensation expense has been recorded.
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. The Company repurchased 9.013.5 million shares in fiscal 20142017 as compared to 10.413.8 million shares repurchased in fiscal 2013.2016. 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 $1.2$24.5 million,, $17.8 $25.2 million,, and $15.4$25.2 million during fiscal years 2014, 2013,2017, 2016, and 2012.2015, respectively.
The following table represents stock-based compensation expense and related income tax benefits in each of fiscal 2014, 2013,2017, 2016, and 2012,2015, respectively:
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| Operating expenses | | $ | 25.7 |
| | $ | 17.9 |
| | $ | 17.2 |
| | $ | 21.5 |
| | $ | 23.1 |
| | $ | 27.0 |
|
| Selling, general and administrative expenses | | 93.7 |
| | 64.0 |
| | 62.6 |
| | 99.2 |
| | 97.4 |
| | 95.8 |
|
| System development and programming costs | | 19.0 |
| | 14.5 |
| | 14.3 |
| | 18.2 |
| | 17.1 |
| | 20.4 |
|
| Total pretax stock-based compensation expense | | $ | 138.4 |
| | $ | 96.4 |
| | $ | 94.1 |
| | $ | 138.9 |
| | $ | 137.6 |
| | $ | 143.2 |
|
| | | | | | | | | | | | | |
| Income tax benefit | | $ | 49.5 |
| | $ | 34.3 |
| | $ | 33.5 |
| | $ | 49.9 |
| | $ | 49.6 |
| | $ | 51.1 |
|
Stock-based compensation expense attributable to employees of the discontinued operations are included in discontinued operations on the Statements of Consolidated Earnings and therefore not presented in the table above. For fiscal 2015 such stock-based compensation expense was $5.5 million.
As a result of the spin-off of CDK, the number of vested and unvested ADP stock options, their strike price, and the number of unvested performance-based and time-based restricted shares and units were adjusted to preserve the intrinsic value of the awards immediately prior to the spin-off using an adjustment ratio based on the market close price of ADP stock prior to the spin-off and the market open price of ADP stock subsequent to the spin-off. Since these adjustments were considered to be a modification of the awards in accordance to ASC 718, "Stock Compensation," the Company compared the fair value of the awards immediately prior to the spin-off to the fair value immediately after the spin-off to measure potential incremental stock-based compensation expense, if any. The adjustments did not result in an increase in the fair value of the awards and, accordingly, the Company did not record incremental stock-based compensation expense. Unvested ADP stock options, unvested restricted stock, and unvested restricted stock units held by CDK employees were replaced by CDK awards immediately following the spin-off. The stock-based compensation expense associated with the original grant of ADP awards to remaining ADP employees will continue to be recognized within earnings from continuing operations in the Company's Statements of Consolidated Earnings.
As of June 30, 2014,2017, the total remaining unrecognized compensation cost related to non-vested stock options, restricted stock units, and restricted stock awards amounted to $16.8$12.6 million,, $26.7 $27.9 million,, and $89.9$60.7 million,, respectively, which will be amortized over the weighted-average remaining requisite service periods of 2.12.3 years,, 1.3 years,, and 1.31.1 years,, respectively.
In fiscal 2014,2017, the following activity occurred under the Company’s existing plans:plans.
Stock Options:
| | | Year ended June 30, 2014 | | Number of Options (in thousands) | | Weighted Average Price (in dollars) | |
| Options outstanding, beginning of year | | 11,110 |
| | $ | 44 |
| |
| | | | Number of Options (in thousands) | | Weighted Average Price (in dollars) |
| Options outstanding at July 1, 2016 | | | 4,869 |
| | $ | 65 |
|
| Options granted | | 1,489 |
| | $ | 79 |
| | 1,234 |
| | $ | 91 |
|
| Options exercised | | (4,485 | ) | | $ | 41 |
| | (1,702 | ) | | $ | 56 |
|
| Options canceled | | (183 | ) | | $ | 48 |
| | (229 | ) | | $ | 80 |
|
| Options outstanding, end of year | | 7,931 |
| | $ | 52 |
| |
| Options exercisable, end of year | | 5,005 |
| | $ | 42 |
| |
| Options outstanding at June 30, 2017 | | | 4,172 |
| | $ | 75 |
|
| Options exercisable at June 30, 2017 | | | 1,519 |
| | $ | 62 |
|
| Shares available for future grants, end of year | | 27,153 |
| | | | 18,548 |
| | |
| Shares reserved for issuance under stock option plans, end of year | | 35,084 |
| | | | 22,720 |
| | |
Time-Based Restricted Stock and Time-Based Restricted Stock Units:
| | | Year ended June 30, 2014 | | Number of Shares (in thousands) | | Number of Units (in thousands) | |
| Restricted shares/units outstanding at July 1, 2013 | | 1,313 |
| | 280 |
| |
| | | | Number of Shares (in thousands) | | Number of Units (in thousands) |
| Restricted shares/units outstanding at July 1, 2016 | | | 1,889 |
| | 434 |
|
| Restricted shares/units granted | | 1,290 |
| | 308 |
| | 888 |
| | 204 |
|
| Restricted shares/units vested | | (167 | ) | | — |
| | (868 | ) | | (203 | ) |
| Restricted shares/units forfeited | | (95 | ) | | (17 | ) | | (148 | ) | | (49 | ) |
| Restricted shares/units outstanding at June 30, 2014 | | 2,341 |
| | 571 |
| |
| Restricted shares/units outstanding at June 30, 2017 | | | 1,761 |
| | 386 |
|
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:
| | | Year ended June 30, 2014 | | Number of Shares (in thousands) | | Number of Units (in thousands) | |
| Restricted shares/units outstanding at July 1, 2013 | | 521 |
| | 38 |
| |
| | | | Number of Shares (in thousands) | | Number of Units (in thousands) |
| Restricted shares/units outstanding at July 1, 2016 | | | 574 |
| | 811 |
|
| Restricted shares/units granted | | 599 |
| | 307 |
| | 172 |
| | 317 |
|
| Restricted shares/units vested | | (264 | ) | | (22 | ) | | (311 | ) | | (272 | ) |
| Restricted shares/units forfeited | | (53 | ) | | (5 | ) | | (31 | ) | | (87 | ) |
| Restricted shares/units outstanding at June 30, 2014 | | 803 |
| | 318 |
| |
| Restricted shares/units outstanding at June 30, 2017 | | | 404 |
| | 769 |
|
The aggregate intrinsic value of outstanding stock options outstanding and exercisable stock options as of June 30, 20142017 was $216.9112.6 million and $185.161.2 million, respectively, which hashave a remaining life of 5.47.2 years and 3.45.4 years,, respectively. The aggregate intrinsic value for stock options exercised in fiscal 2014, 2013,2017, 2016, and 20122015 was $156.370.9 million, $135.185.4 million, and $83.8$125.3 million,, respectively.
The fair value of each stock option issued is estimated on the date of grant using a binomial option pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.
The fair value for stock options granted was estimated at the date of grant using the following assumptions:
| | | | 2014 | | 2013 | | 2012 | 2017 | | 2016 | | 2015 |
| Risk-free interest rate | 1.5% - 1.7% |
| | 0.8% - 1.0% |
| | 0.8% - 1.0% |
| 1.2 | % | | 1.6 | % | | 1.5 | % |
| Dividend yield | 2.3% - 2.4% |
| | 2.7% - 2.9% |
| | 2.8% - 3.1% |
| 2.3 | % | | 2.6 | % | | 2.3 | % |
| Weighted average volatility factor | 23.8 | % | | 23.5% - 24.4% |
| | 24.9% - 25.9% |
| 23.2 | % | | 25.6 | % | | 23.4 | % |
| Weighted average expected life (in years) | 5.4 |
| | 5.3 - 5.4 |
| | 5.2 - 5.3 |
| 5.4 |
| | 5.4 |
| | 5.4 |
|
Weighted average fair value (in dollars) | $ | 13.53 |
| | $ | 8.63 |
| | $ | 8.46 |
| $ | 14.36 |
| | $ | 13.16 |
| | $ | 14.29 |
|
The weighted average fair values of shares granted were as follows:
| | | Year ended June 30, | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | |
Performance-based restricted stock | $ | 60.38 |
| | $ | 55.13 |
| | $ | 44.33 |
| | $ | 90.63 |
| | $ | 75.95 |
| | $ | 64.91 |
|
Time-based restricted stock | $ | 71.50 |
| | $ | 58.72 |
| | $ | 54.40 |
| | $ | 90.99 |
| | $ | 76.09 |
| | $ | 73.83 |
|
(A) The weighted average fair values of grants before September 30, 2014 were adjusted to reflect the impact of the spin-off of CDK.
B. Pension Plans
The Company has a defined benefit cash balance pension plan covering substantially all U.S. employees, under which employees are credited with a percentage of base pay plus interest. Effective January 1, 2015, associates hired on or after this date are not eligible to participate in this pension plan. In addition, associates rehired on or after January 1, 2015 will no longer be eligible to earn additional contributions but will continue to earn interest on any balance that remains in the pension plan. The plan interest credit rate varies from year-to-year based on the ten-yearten-year U.S. Treasury rate. Employees are fully vested upon completion of three years of service. The Company's policy is to make contributions within the range determined by generally accepted actuarial principles. In addition, the
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 keycorporate officers upon retirement based upon the officers' years of service and compensation. The SORP, which is currently closed to new entrants, will be frozen effective July 1, 2019. Benefits under the plan will continue to accrue through June 30, 2019, and as of July 1, 2019 and onward, participants will retain their accrued benefits 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, 20142017 and 20132016 is as follows:
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | | | | |
| Change in plan assets: | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 1,676.1 |
| | $ | 1,469.5 |
| | $ | 2,006.3 |
| | $ | 2,009.8 |
|
| Actual return on plan assets | | 311.1 |
| | 121.0 |
| | 195.2 |
| | 61.2 |
|
| Employer contributions | | 84.7 |
| | 135.3 |
| | 11.9 |
| | 11.0 |
|
| Currency translation adjustments | | 4.2 |
| | (1.5 | ) | | (3.2 | ) | | (8.7 | ) |
| Benefits paid | | (52.0 | ) | | (48.2 | ) | | (71.8 | ) | | (67.0 | ) |
| Fair value of plan assets at end of year | | $ | 2,024.1 |
| | $ | 1,676.1 |
| | $ | 2,138.4 |
| | $ | 2,006.3 |
|
| | | | | | | | | |
| Change in benefit obligation: | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 1,427.8 |
| | $ | 1,412.1 |
| | $ | 1,843.9 |
| | $ | 1,661.0 |
|
| Service cost | | 66.4 |
| | 67.2 |
| | 80.8 |
| | 70.4 |
|
| Interest cost | | 62.6 |
| | 55.1 |
| | 60.0 |
| | 67.4 |
|
| Actuarial losses/(gains) | | 87.2 |
| | (58.6 | ) | |
| Actuarial (gain)/losses | | | (44.5 | ) | | 145.3 |
|
| Currency translation adjustments | | 6.7 |
| | 0.2 |
| | 2.7 |
| | (7.6 | ) |
| Plan changes | | | — |
| | (25.6 | ) |
| Curtailments and special termination benefits | | | (4.4 | ) | | — |
|
| Benefits paid | | (52.0 | ) | | (48.2 | ) | | (71.8 | ) | | (67.0 | ) |
| Projected benefit obligation at end of year | | $ | 1,598.7 |
| | $ | 1,427.8 |
| | $ | 1,866.7 |
| | $ | 1,843.9 |
|
| | | | | | | | | |
| Funded status - plan assets less benefit obligations | | $ | 425.4 |
| | $ | 248.3 |
| | $ | 271.7 |
| | $ | 162.4 |
|
The amounts recognized on the Consolidated Balance Sheets as of June 30, 20142017 and 20132016 consisted of:
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | | | | |
| Noncurrent assets | | $ | 551.4 |
| | $ | 362.6 |
| | $ | 413.8 |
| | $ | 306.5 |
|
| Current liabilities | | (5.6 | ) | | (4.7 | ) | | (5.0 | ) | | (6.9 | ) |
| Noncurrent liabilities | | (120.4 | ) | | (109.6 | ) | | (137.1 | ) | | (137.2 | ) |
| Net amount recognized | | $ | 425.4 |
| | $ | 248.3 |
| | $ | 271.7 |
| | $ | 162.4 |
|
The accumulated benefit obligation for all defined benefit pension plans was $1,581.91,852.5 million and $1,412.81,825.1 million at June 30, 20142017 and 2013,2016, respectively.
The Company's pension plans with accumulated benefit obligations in excess of plan assets as of June 30, 20142017 and 20132016 had the following projected benefit obligation, accumulated benefit obligation, and fair value of plan assets:
| | | June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | | | | |
| Projected benefit obligation | | $ | 142.6 |
| | $ | 127.7 |
| | $ | 241.0 |
| | $ | 165.7 |
|
| Accumulated benefit obligation | | $ | 127.8 |
| | $ | 115.3 |
| | $ | 227.9 |
| | $ | 148.2 |
|
| Fair value of plan assets | | $ | 16.7 |
| | $ | 14.2 |
| | $ | 98.9 |
| | $ | 21.6 |
|
The components of net pension expense were as follows:
| | | | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| Service cost – benefits earned during the period | | $ | 66.4 |
| | $ | 67.2 |
| | $ | 57.2 |
| | $ | 80.8 |
| | $ | 70.4 |
| | $ | 68.4 |
|
| Interest cost on projected benefits | | 62.6 |
| | 55.1 |
| | 62.1 |
| | 60.0 |
| | 67.4 |
| | 62.8 |
|
| Expected return on plan assets | | (119.4 | ) | | (109.5 | ) | | (97.6 | ) | | (135.8 | ) | | (131.2 | ) | | (129.7 | ) |
| Net amortization and deferral | | 20.1 |
| | 30.9 |
| | 15.0 |
| | 19.1 |
| | 11.0 |
| | 17.2 |
|
| Special termination benefits and plan curtailments | | | 0.1 |
| | 0.1 |
| | 3.2 |
|
| Net pension expense | | $ | 29.7 |
| | $ | 43.7 |
| | $ | 36.7 |
| | $ | 24.2 |
| | $ | 17.7 |
| | $ | 21.9 |
|
Net pension expense for fiscal 2015 includes $4.3 million reported within earnings from discontinued operations on the Statements of Consolidated Earnings. Included within pension expense related to discontinued operations for fiscal 2015 were total one-time charges of $3.2 million for curtailment charges and special termination benefits directly attributable to the spin-off of CDK.
The net actuarial loss and prior service cost, and transition obligationcredit 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 $189.4$330.5 million, $4.2 and $21.3 million,, and $0.3 million, respectively, at June 30, 2014.2017. There is no remaining transition obligation for the defined benefit pension plans included in accumulated other comprehensive income. The estimated net actuarial loss and prior service cost, and transition obligationcredit for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost over the nextin fiscal year2018 are $16.3$10.5 million, $0.9 and $2.2 million,, and $0.2 million, respectively, at June 30, 2014. respectively.
Assumptions used to determine the actuarial present value of benefit obligations were: | | | Years ended June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | | | | |
| Discount rate | | 4.05 | % | | 4.50 | % | | 3.70 | % | | 3.40 | % |
| Increase in compensation levels | | 4.00 | % | | 4.00 | % | | 4.00 | % | | 4.00 | % |
Assumptions used to determine the net pension expense generally were:
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | |
| Discount rate | | 4.50 | % | | 3.90 | % | | 5.40 | % | | 3.40 | % | | 4.25 | % | | 4.05 | % |
| Expected long-term rate of return on assets | | 7.25 | % | | 7.25 | % | | 7.25 | % | | 7.00 | % | | 7.00 | % | | 7.25 | % |
| Increase in compensation levels | | 4.00 | % | | 4.00 | % | | 4.00 | % | | 4.00 | % | | 4.00 | % | | 4.00 | % |
The discount rate is based upon published rates for high-quality fixed-income investments that produce cash flows that approximate the timing and amount of expected future benefit payments.
The expected long-term rate of return on assets is determined based on historical and expected future rates of return on plan assets considering the target asset mix and the long-term investment strategy.
Plan Assets
The Company's pension plans' asset allocations at June 30, 20142017 and 20132016 by asset category were as follows:
| | | | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | | | | |
| U.S. fixed income securities | | 33 | % | | 31 | % | |
| Cash and cash equivalents | | | 1 | % | | 3 | % |
| Fixed income securities | | | 36 | % | | 42 | % |
| U.S. equity securities | | 20 | % | | 21 | % | | 19 | % | | 18 | % |
| International equity securities | | 21 | % | | 21 | % | | 16 | % | | 14 | % |
| Global equity securities | | 26 | % | | 27 | % | | 28 | % | | 23 | % |
| | | 100 | % | | 100 | % | | 100 | % | | 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. In fiscal 2013, the Company revised the target asset allocation of the U.S. pension plan to include global equities as a separate asset class to enhance the diversification of overall pension plan investments.
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 | 35% - 45% |
| U.S. equity securities | 14% - 24% |
| International equity securities | 11% - 21% |
| Global equity securities | 20% - 30% |
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 the S&P 500 Index.equity indices.
The pension plans' investments included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. The pension plans' investments included in Level 2 are valued utilizing inputs obtained from an independent pricing service, which are reviewed by the Company for reasonableness. To determine the fair value of our Level 2 plan assets, a variety of inputs are utilized, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment information. The pension plans have no Level 3 investments at June 30, 2014.2017.
The following table presents the investments of the pension plans measured at fair value at June 30, 2014:2017:
| | | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | |
| Commingled trusts | | $ | — |
| | $ | 1,261.1 |
| | $ | — |
| | $ | 1,261.1 |
| | $ | — |
| | $ | 1,338.5 |
| | $ | — |
| | $ | 1,338.5 |
|
| U.S. government securities | | — |
| | 271.9 |
| | — |
| | 271.9 |
| |
| Government securities | | | — |
| | 337.7 |
| | — |
| | 337.7 |
|
| Mutual funds | | 88.2 |
| | — |
| | — |
| | 88.2 |
| | 4.8 |
| | — |
| | — |
| | 4.8 |
|
| Corporate and municipal bonds | | — |
| | 368.3 |
| | — |
| | 368.3 |
| | — |
| | 409.3 |
| | — |
| | 409.3 |
|
| Mortgage-backed security bonds | | — |
| | 22.9 |
| | — |
| | 22.9 |
| | — |
| | 32.9 |
| | — |
| | 32.9 |
|
| Total pension assets | | $ | 88.2 |
| | $ | 1,924.2 |
| | $ | — |
| | $ | 2,012.4 |
| |
| Total pension asset investments | | | $ | 4.8 |
| | $ | 2,118.4 |
| | $ | — |
| | $ | 2,123.2 |
|
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $11.715.2 million as of June 30, 2014,2017, which have been classified as Level 21 in the fair value hierarchy.
The following table presents the investments of the pension plans measured at fair value at June 30, 2013:2016:
| | | | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | |
| Commingled trusts | | $ | — |
| | $ | 1,050.7 |
| | $ | — |
| | $ | 1,050.7 |
| | $ | — |
| | $ | 1,029.2 |
| | $ | — |
| | $ | 1,029.2 |
|
| U.S. government securities | | — |
| | 228.3 |
| | — |
| | 228.3 |
| | — |
| | 371.5 |
| | — |
| | 371.5 |
|
| Mutual funds | | 79.2 |
| | — |
| | — |
| | 79.2 |
| | 76.6 |
| | — |
| | — |
| | 76.6 |
|
| Corporate and municipal bonds | | — |
| | 252.5 |
| | — |
| | 252.5 |
| | — |
| | 433.4 |
| | — |
| | 433.4 |
|
| Mortgage-backed security bonds | | — |
| | 22.7 |
| | — |
| | 22.7 |
| | — |
| | 35.3 |
| | — |
| | 35.3 |
|
| Total pension assets | | $ | 79.2 |
| | $ | 1,554.2 |
| | $ | — |
| | $ | 1,633.4 |
| |
| Total pension asset investments | | | $ | 76.6 |
| | $ | 1,869.4 |
| | $ | — |
| | $ | 1,946.0 |
|
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of $42.760.3 million as of June 30, 2013,2016, which have been classified as Level 21 in the fair value hierarchy.
Contributions
During fiscal 2014,2017, the Company contributed $84.711.9 million to the pension plans. The Company expects to contribute $9.5 million to the pension plans during fiscal 2015.2018.
Estimated Future Benefit Payments
The benefits expected to be paid in each year from fiscal 20152018 to 2019the year ended June 30, 2022 are $61.385.9 million, $66.989.8 million, $76.597.1 million, $85.6107.7 million, and $93.8119.2 million, respectively. The aggregate benefits expected to be paid in the five fiscal years from 2020the year ended June 30, 2023 to 2024the year ended June 30, 2027 are $609.4718.3 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, 20142017 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 $87.9 million, $77.6 million, $72.081.9 million, and $65.969.7 million for the calendar years ended December 31, 2013, 2012,2016, 2015, and 2011,2014, respectively.
NOTE 12. INCOME TAXES
Earnings from continuing operations before income taxes shown below are based on the geographic location to which such earnings are attributable.
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | |
| Earnings from continuing operations before income taxes: | | | | | | | | | | | | |
| United States | | $ | 1,960.3 |
| | $ | 1,757.6 |
| | $ | 1,874.4 |
| | $ | 2,232.8 |
| | $ | 2,028.5 |
| | $ | 1,895.3 |
|
| Foreign | | 314.3 |
| | 318.5 |
| | 227.3 |
| | 298.3 |
| | 206.2 |
| | 175.4 |
|
| | | $ | 2,274.6 |
| | $ | 2,076.1 |
| | $ | 2,101.7 |
| | $ | 2,531.1 |
| | $ | 2,234.7 |
| | $ | 2,070.7 |
|
The provision (benefit) for income taxes consists of the following components:
| | | Years ended June 30, | | 2014 | | 2013 | | 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 666.6 |
| | $ | 539.2 |
| | $ | 537.6 |
| | $ | 615.3 |
| | $ | 579.0 |
| | $ | 576.3 |
|
| Foreign | | 92.2 |
| | 103.6 |
| | 85.4 |
| | 91.6 |
| | 85.0 |
| | 93.1 |
|
| State | | 63.5 |
| | 50.5 |
| | 67.4 |
| | 82.7 |
| | 76.6 |
| | 40.1 |
|
| Total current | | 822.3 |
| | 693.3 |
| | 690.4 |
| | 789.6 |
| | 740.6 |
| | 709.5 |
|
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| Federal | | (35.4 | ) | | 35.2 |
| | 48.4 |
| | 6.2 |
| | 17.7 |
| | (1.3 | ) |
| Foreign | | (19.2 | ) | | (14.9 | ) | | (9.1 | ) | | 7.2 |
| | (15.7 | ) | | (17.0 | ) |
| State | | 4.3 |
| | 4.4 |
| | (3.2 | ) | | (5.3 | ) | | (1.3 | ) | | 3.0 |
|
| Total deferred | | (50.3 | ) | | 24.7 |
| | 36.1 |
| | 8.1 |
| | 0.7 |
| | (15.3 | ) |
| Total provision for income taxes | | $ | 772.0 |
| | $ | 718.0 |
| | $ | 726.5 |
| | $ | 797.7 |
| | $ | 741.3 |
| | $ | 694.2 |
|
A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:
| | | Years ended June 30, | | 2014 | | % | | 2013 | | % | | 2012 | | % | | 2017 | | % | | 2016 | | % | | 2015 | | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for taxes at U.S. statutory rate | | $ | 796.1 |
| | 35.0 |
| | $ | 726.7 |
| | 35.0 |
| | $ | 735.7 |
| | 35.0 |
| | $ | 885.9 |
| | 35.0 |
| | $ | 782.1 |
| | 35.0 |
| | $ | 724.8 |
| | 35.0 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Increase (decrease) in provision from: | | | | | | | | | | | | | | | | | | | | | | | | |
| State taxes, net of federal tax benefit | | 44.2 |
| | 1.9 |
| | 35.3 |
| | 1.7 |
| | 37.6 |
| | 1.8 |
| | 52.2 |
| | 2.1 |
| | 47.2 |
| | 2.1 |
| | 34.8 |
| | 1.7 |
|
| U.S. tax on foreign income | | 26.8 |
| | 1.2 |
| | 85.3 |
| | 4.2 |
| | 51.4 |
| | 2.5 |
| | 66.1 |
| | 2.6 |
| | 122.6 |
| | 5.5 |
| | 155.3 |
| | 7.5 |
|
| Utilization of foreign tax credits | | (27.5 | ) | | (1.2 | ) | | (94.4 | ) | | (4.6 | ) | | (51.7 | ) | | (2.5 | ) | | (76.0 | ) | | (3.0 | ) | | (155.4 | ) | | (7.0 | ) | | (177.1 | ) | | (8.6 | ) |
| Section 199 - Qualified production activities | | (23.0 | ) | | (1.0 | ) | | (22.3 | ) | | (1.1 | ) | | (22.4 | ) | | (1.1 | ) | | (33.2 | ) | | (1.3 | ) | | (31.9 | ) | | (1.4 | ) | | (28.9 | ) | | (1.4 | ) |
| Other (A) | | (44.6 | ) | | (2.0 | ) | | (12.6 | ) | | (0.6 | ) | | (24.1 | ) | | (1.1 | ) | |
Section 199 - Qualified production activities and research tax credit refund claim - net of reserves
| | | (51.8 | ) | | (2.1 | ) | | — |
| | — |
| | — |
| | — |
|
| Excess tax benefit - Stock-based compensation | | | (32.1 | ) | | (1.3 | ) | | — |
| | — |
| | — |
| | — |
|
| Other | | | (13.4 | ) | | (0.5 | ) | | (23.3 | ) | | (1.0 | ) | | (14.7 | ) | | (0.7 | ) |
| | | $ | 772.0 |
| | 33.9 |
| | $ | 718.0 |
| | 34.6 |
| | $ | 726.5 |
| | 34.6 |
| | $ | 797.7 |
| | 31.5 |
| | $ | 741.3 |
| | 33.2 |
| | $ | 694.2 |
| | 33.5 |
|
(A) Fiscal 2014 includes $5.6 million for the tax impact of non tax-deductible separation cost related to the Company's planned separation of the Dealer Services business which increased our fiscal 2014 effective tax rate 0.2 percentage points. Fiscal 2013 includes $16.0 million for the tax impact of the non tax-deductible goodwill impairment related to ADP AdvancedMD which increased our fiscal 2013 effective tax rate 0.7 percentage points.
The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
| | | Years ended June 30, | | 2014 | | 2013 | | 2017 | | 2016 |
| | | | | | | | | |
| Deferred tax assets: | | | | | | | | |
| Accrued expenses not currently deductible | | $ | 248.0 |
| | $ | 223.4 |
| | $ | 294.5 |
| | $ | 262.8 |
|
| Stock-based compensation expense | | 87.3 |
| | 84.1 |
| | 75.5 |
| | 74.6 |
|
| Foreign Tax Credits | | | 49.5 |
| | 47.1 |
|
| Net operating losses | | 79.7 |
| | 97.6 |
| | 49.5 |
| | 46.0 |
|
| Other | | 36.4 |
| | 39.5 |
| | 18.7 |
| | 23.7 |
|
| | | 451.4 |
| | 444.6 |
| | 487.7 |
| | 454.2 |
|
| Less: valuation allowances | | (44.0 | ) | | (48.8 | ) | | (9.4 | ) | | (15.4 | ) |
| Deferred tax assets, net | | $ | 407.4 |
| | $ | 395.8 |
| | $ | 478.3 |
| | $ | 438.8 |
|
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Prepaid retirement benefits | | $ | 183.7 |
| | $ | 146.2 |
| | $ | 125.1 |
| | $ | 77.2 |
|
| Deferred revenue | | 71.9 |
| | 62.9 |
| | 35.5 |
| | 43.2 |
|
| Fixed and intangible assets | | 203.1 |
| | 235.3 |
| | 226.3 |
| | 171.4 |
|
| Prepaid expenses | | 100.7 |
| | 88.9 |
| | 122.5 |
| | 118.0 |
|
| Unrealized investment gains, net | | 112.3 |
| | 99.8 |
| | 33.4 |
| | 176.2 |
|
| Tax on unrepatriated earnings | | 14.1 |
| | 12.3 |
| |
| Other | | 1.9 |
| | 7.3 |
| | 5.2 |
| | 3.6 |
|
| Deferred tax liabilities | | $ | 687.7 |
| | $ | 652.7 |
| | $ | 548.0 |
| | $ | 589.6 |
|
| Net deferred tax liabilities | | $ | 280.3 |
| | $ | 256.9 |
| | $ | 69.7 |
| | $ | 150.8 |
|
There are $29.493.4 million and $26.1 million of current deferred tax assets included in other current assets on the Consolidated Balance Sheets at June 30, 2014 and 2013, respectively. There are $76.6 million and $89.4100.3 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 20142017 and 2013, respectively. There are $97.5 million and $138.0 million of current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at June 30, 2014 and 2013,2016, respectively.
Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $1,031.6469.5 million as of June 30, 2014,2017, as the Company considers such earnings to be permanently reinvested
outside of the United States. The additional U.S. income tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impracticable to estimate the amount of net income tax that might be payable.
The Company has estimated foreign net operating loss carry-forwards of approximately $105.571.7 million as of June 30, 2014,2017, of which $47.3$17.3 million expire through 20342025 and $58.254.4 million hashave an indefinite utilization period. As of June 30, 2014,2017, the Company has approximately $77.835.4 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 2030.2031.
The Company has state net operating loss carry-forwards of approximately $193.6271.4 million as of June 30, 2014,2017, which expire through 2033.2036.
The Company has recorded valuation allowances of $44.0$9.4 million and $48.8$15.4 million at June 30, 20142017 and 2013,2016, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.
Income tax payments were approximately $821.5817.1 million, $691.0651.6 million, and $658.7773.3 million for fiscal 2014, 2013,2017, 2016, and 2012,2015, respectively.
As of June 30, 2014, 2013,2017, 2016, and 20122015 the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $56.774.6 million, $70.727.4 million, and $84.727.1 million respectively. The amount that, if recognized, would impact the effective tax rate is $31.261.0 million, $38.818.7 million, and $43.716.9 million, respectively. The remainder, if recognized, would principally impact deferred taxes.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | Fiscal 2014 | | Fiscal 2013 | | Fiscal 2012 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | | |
| Unrecognized tax benefits at beginning of the year | | $ | 70.7 |
| | $ | 84.7 |
| | $ | 105.7 |
| | $ | 27.4 |
| | $ | 27.1 |
| | $ | 56.5 |
|
| Additions for tax positions | | 3.6 |
| | 5.0 |
| | 8.0 |
| | 7.5 |
| | 3.8 |
| | 2.4 |
|
| Reductions for tax positions | | — |
| | — |
| | (0.8 | ) | |
| Additions for tax positions of prior periods | | 7.0 |
| | 5.3 |
| | 13.0 |
| | 41.9 |
| | 3.5 |
| | 3.1 |
|
| Reductions for tax positions of prior periods | | (7.4 | ) | | (3.7 | ) | | (21.6 | ) | | (0.5 | ) | | (0.1 | ) | | (6.5 | ) |
| Settlement with tax authorities | | (4.4 | ) | | (12.0 | ) | | (4.2 | ) | | (0.9 | ) | | (1.7 | ) | | (12.2 | ) |
| Expiration of the statute of limitations | | (13.7 | ) | | (9.7 | ) | | (9.8 | ) | | (0.9 | ) | | (4.9 | ) | | (14.0 | ) |
| Impact of foreign exchange rate fluctuations | | 0.9 |
| | 1.1 |
| | (5.6 | ) | | 0.1 |
| | (0.3 | ) | | (2.2 | ) |
| Unrecognized tax benefit at end of year | | $ | 56.7 |
| | $ | 70.7 |
| | $ | 84.7 |
| | $ | 74.6 |
| | $ | 27.4 |
| | $ | 27.1 |
|
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 ended June 30, 2014, 2013,2017, 2016, and 2012,2015, the Company recorded interest expense (benefit) expense of $(3.4)3.0 million, $0.41.1 million, and $1.2(2.7) million, respectively. Penalties incurred during fiscal years ended June 30, 2014, 2013,2017, 2016, and 20122015 were not material.significant.
At June 30, 2014,2017, the Company had accrued interest of $10.76.9 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2013,2016, the Company had accrued interest of $12.2 million recorded on the Consolidated Balance Sheets, of which $1.2 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2014, the Company had accrued penalties of $0.64.0 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2013,2017, the Company had accrued penalties of $1.00.2 million recorded on the Consolidated Balance Sheets within other liabilities. At June 30, 2016, the Company had accrued penalties of which $0.10.2 million was recorded within income taxes payable, andon the remainder was recordedConsolidated Balance Sheets within other liabilities.
The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations. The tax years currently under examination vary by jurisdiction. Examinations in progress in which the Company has significant business operations are as follows:
|
| | |
| Taxing Jurisdiction | | Fiscal Years under Examination |
| U.S. (IRS) | | 2013-20142016-2017 |
ArizonaCalifornia | | 1998-20072012-2014 |
| Illinois | | 2004-2011 |
Minnesota | | 2005-20122007-2013 |
| New York | | 2007-20092010-2015 |
New JerseyCanada | | 2002-20092012-2014 |
| India | | 2004-2011, 2013-2015 |
| Germany | | 2010-2014 |
The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions. The resolution of tax matters is not expected to have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company's Statements of Consolidated Earnings for a particular future period and on the Company's effective tax rate.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and tax periods could increase earnings up to $1035 million in the next twelve months. 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.
In fiscal 2014, the Company reached agreements with2017, the IRS regarding all outstandingcompleted its review of the examination of the Company's tax audit issues in disputereturn for the tax years through and includingyear ended June
30, 2012,2015, which did not have a material impact to the consolidated financial statementsConsolidated Financial Statements of the Company.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has obligations under various facilities and equipment leases and software license agreements. Total expenseleases. Minimum commitments under these agreements was approximately $306.0 million, $270.1 million, and $252.6 million in fiscal 2014, 2013, and 2012, respectively,obligations with minimum commitmentsa future life of greater than one year at June 30, 20142017 are as follows:
| | | Years ending June 30, | | |
| | | |
| 2015 | $ | 209.9 |
| |
| 2016 | 147.3 |
| |
| 2017 | 87.9 |
| |
| 2018 | 53.2 |
| $ | 105.4 |
|
| 2019 | 29.8 |
| 96.9 |
|
| 2020 | | 73.8 |
|
| 2021 | | 52.1 |
|
| 2022 | | 35.0 |
|
| Thereafter | 32.6 |
| 110.5 |
|
| | $ | 560.7 |
| $ | 473.7 |
|
In addition to fixed rentals, certain leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices.
As of June 30, 2014,2017, the Company has purchase commitments of approximately appro$780.4ximately $644.9 million,, including a reinsurance premium with ACE American Insurance CompanyChubb for the fiscal 20152018 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 $379.7$368.7 million relates to fiscal 2015, $157.22018, $116.4 million relates to the fiscal year ending June 30, 20162019, and the remaining $243.5$159.8 million relates to fiscal years ending June 30, 20172020 through fiscal 2019.2022.
OnIn July 18, 2011, athenahealth,2016, Uniloc USA, Inc. and Uniloc Luxembourg, S.A. (“Uniloc”) filed a patent infringement lawsuit against ADP AdvancedMD, Inc. ("ADP AdvancedMD"), a subsidiary of the Company seekingin the United States District Court for the Eastern District of Texas alleging that Company products and services infringe four patents. Uniloc alleges infringement of its patents concerning centralized management of application programs on a network, distribution of application programs to a target station on a network, management of configurable application programs on a network, and license use management on a network. The complaint seeks unspecified monetary damages, costs, and injunctive relief, and costs. The allegations include a claim that ADP AdvancedMD's activities in providing medical practice management and billing and revenue management
software and associated services to physicians and medical practice managers infringe a patent owned by athenahealth, Inc. The parties are currently engaged in the discovery process and the court has not yet set a trial date.relief. The Company believes that it has meritorious defensesis unable to estimate any reasonably possible loss, or range of loss, with respect to this lawsuit andmatter. The Company continues to vigorously defend itself against the allegations.
In June 2011, the Company received a Commissioner’s Charge from the U.S. Equal Employment Opportunity Commission (“EEOC”) alleging that the Company has violated Title VII of the Civil Rights Act of 1964 by refusing to recruit, hire, transfer and promote certain persons on the basis of their race, in the State of Illinois from at least the period of January 1, 2007 to the present. The Company continues to investigate the allegations set forth in the Commissioner’s Charge and is cooperating with the EEOC’s investigation.this lawsuit.
The Company is subject to various claims and litigation 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. At this time,Management currently believes that the Company is unable to estimate any reasonably possible loss,resolution of these claims and litigation against us, individually or rangein the aggregate, will not have a material adverse impact on our consolidated results of reasonably possible loss, with respect to theoperations, financial condition or cash flows. These matters described above. This is primarily because these matters involve complex issuesare subject to inherent uncertainty. There can be no assurance thatuncertainties and management's view of these matters will be resolvedmay change in a manner that is not adverse to the Company.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.
NOTE 14. RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss). Other comprehensive income (loss) results from items deferred on the Consolidated Balance Sheets in stockholders' equity. Other comprehensive (loss) income (loss) was $162.8(164.1) million, $(214.8)45.5 million, and $(136.9)(350.6) million in fiscal 2014, 2013,2017, 2016, and 2012,2015, respectively. Changes in Accumulated Other Comprehensive Income ("AOCI") by component are as follows:
| | | | | Currency Translation Adjustment | | Net Gains on Available-for-sale Securities | | Pension Liability | | Accumulated Other Comprehensive Income | | Currency Translation Adjustment | | Net Gains on Available-for-sale Securities | | Pension Liability | | Accumulated Other Comprehensive Income / (Loss) |
| | | | | | | | | | | | | | | | | |
| Balance at June 30, 2012 | | 42.0 |
| | 461.3 |
| | (273.1 | ) | | 230.2 |
| |
Other comprehensive (loss) income before
reclassification adjustments | | (2.4 | ) | | (394.6 | ) | | 68.2 |
| | (328.8 | ) | |
| Balance at June 30, 2014 | | | $ | 99.5 |
| | $ | 211.6 |
| | $ | (132.9 | ) | | $ | 178.2 |
|
Other comprehensive loss before
reclassification adjustments | | | (240.8 | ) | | (103.0 | ) | | (87.4 | ) | | (431.2 | ) |
| Tax effect | | — |
| | 138.5 |
| | (25.7 | ) | | 112.8 |
| | — |
| | 38.6 |
| | 32.7 |
| | 71.3 |
|
| Reclassification adjustments to net earnings | | — |
| | (28.6 | ) | (B) | | 31.7 |
| (C) | | 3.1 |
| | 1.2 |
| (A) | (4.9 | ) | (B) | | 17.9 |
| (C) | | 14.2 |
|
| Tax effect | | — |
| | 10.1 |
| | (12.0 | ) | | (1.9 | ) | | — |
| | 1.6 |
| | (6.5 | ) | | (4.9 | ) |
| Balance at June 30, 2013 | | $ | 39.6 |
| | $ | 186.7 |
| | $ | (210.9 | ) | | $ | 15.4 |
| |
Other comprehensive income before reclassification adjustments | | 58.4 |
| | 53.5 |
| | 102.8 |
| | 214.7 |
| |
Reclassification adjustments to retained earnings | | | (88.2 | ) | (D) | — |
| | — |
| | (88.2 | ) |
| Balance at June 30, 2015 | | | $ | (228.3 | ) | | $ | 143.9 |
| | $ | (176.2 | ) | | $ | (260.6 | ) |
Other comprehensive (loss)/income before
reclassification adjustments | | | (25.5 | ) | | 288.8 |
| | (199.4 | ) | | 63.9 |
|
| Tax effect | | — |
| | (18.2 | ) | | (39.7 | ) | | (57.9 | ) | | — |
| | (102.2 | ) | | 72.9 |
| | (29.3 | ) |
Reclassification adjustments to net earnings | | 1.5 |
| (A) | (16.5 | ) | (B) | | 20.7 |
| (C) | | 5.7 |
| | — |
| | 5.0 |
| (B) | | 12.0 |
| (C) | | 17.0 |
|
| Tax effect | | — |
| | 6.1 |
| | (5.8 | ) | | 0.3 |
| | — |
| | (1.7 | ) | | (4.4 | ) | | (6.1 | ) |
| Balance at June 30, 2014 | | $ | 99.5 |
| | $ | 211.6 |
| | $ | (132.9 | ) | | $ | 178.2 |
| |
| Balance at June 30, 2016 | | | $ | (253.8 | ) | | $ | 333.8 |
| | $ | (295.1 | ) | | $ | (215.1 | ) |
Other comprehensive income/(loss) before reclassification adjustments | | | 23.0 |
| | (405.7 | ) | | 109.6 |
| | (273.1 | ) |
| Tax effect | | | — |
| | 141.6 |
| | (43.6 | ) | | 98.0 |
|
Reclassification adjustments to net earnings | | | — |
|
| (2.2 | ) | (B) | | 20.6 |
| (C) | | 18.4 |
|
| Tax effect | | | — |
| | 0.8 |
| | (8.2 | ) | | (7.4 | ) |
| Balance at June 30, 2017 | | | $ | (230.8 | ) | | $ | 68.3 |
| | $ | (216.7 | ) | | $ | (379.2 | ) |
(A) Reclassification adjustments out of AOCI are included within Net Earningsnet earnings from Discontinued Operations,discontinued operations on the Statements of Consolidated Earnings.
(B) Reclassification adjustments out of AOCI are included within Other income, net, on the Statements of Consolidated Earnings.
(C) Reclassification adjustments out of AOCI are included in net pension expense (see Note 11).
(D) Reclassification adjustment out of AOCI is related to the CDK spin-off and included in retained earnings on the Consolidated Balance Sheets.
NOTE 15. 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 threetwo reportable segments: Employer Services PEO Services, and DealerPEO Services. The primary components of “Other” are non-recurring gains and losses, miscellaneous processing services, the “Other” segment areelimination of intercompany transactions, interest expense, the results of operations of ADP Indemnity (a wholly-owned captive insurance company that provides workers’ compensation and employer’semployee’s liability deductible reimbursement insurance protection for PEO ServicesServices’ worksite employees), non-recurring gains and losses, miscellaneous processing services, such as customer financing transactions, and certain charges and expenses that have not been allocated to the reportable segments, such asand the historical results of the AMD business. Beginning in the first quarter of fiscal 2017, the Company's chief operating decision maker began reviewing the Company's results with stock-based compensation expense,included in the fiscal 2014 separation costs relatedCompany's operating segments. This change, as well as changes to the planned separation of Dealer Services,allocation methodology for certain allocations, has been adjusted in both the current period and the fiscal 2013 goodwill impairment charge.prior period in the table below, and did not materially affect reportable segment results. The Company also adjusted the segment results to reflect the historical results of AMD in Other, which also did not materially affect reportable segment results.
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. There is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of 4.5%. This allocation is made for management reasons so that the reportable segments' results are presented on a consistent basis without the impact of fluctuations in interest rates. This reconciling adjustment to the reportable segments' revenues and earnings from continuing operations before income taxes is eliminated in consolidation.
To align financial reporting with the manner in which the Company's chief operating decision maker assesses performance and makes decisions about resources to be allocated to the reportable segments, effective July 1, 2013, the Company no longer allocates a cost of capital charge to its reportable segments and no longer adjusts the operating results of its reportable segments on a constant exchange rate basis. As a result of these changes, all prior period amounts have been reclassified to conform to the current period presentation. These changes did not significantly affect reportable segment results.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Employer Services | | PEO Services | | Dealer Services | | Other | | Client Fund Interest | | Total |
| | | | | | | | | | | | | |
| Year ended June 30, 2014 | | | | | | | | | | | | |
Revenues from continuing operations | | $ | 8,535.2 |
| | $ | 2,270.9 |
| | $ | 1,951.4 |
| | $ | (0.9 | ) | | $ | (550.1 | ) | | $ | 12,206.5 |
|
Earnings from continuing operations before income taxes | | 2,517.8 |
| | 234.3 |
| | 428.1 |
| | (355.5 | ) | | (550.1 | ) | | 2,274.6 |
|
Assets from continuing operations | | 21,382.2 |
| | 472.6 |
| | 733.0 |
| | 9,463.9 |
| | — |
| | 32,051.7 |
|
Capital expenditures from continuing operations | | 59.7 |
| | 0.9 |
| | 43.6 |
| | 114.5 |
| | — |
| | 218.7 |
|
| Depreciation and amortization | | 152.4 |
| | 1.2 |
| | 64.7 |
| | 117.9 |
| | — |
| | 336.2 |
|
| | | | | | | | | | | | | |
| Year ended June 30, 2013 | | | | | | | | | | | | |
Revenues from continuing operations | | $ | 7,924.9 |
| | $ | 1,973.2 |
| | $ | 1,820.2 |
| | $ | 1.7 |
| | $ | (432.4 | ) | | $ | 11,287.6 |
|
Earnings from continuing operations before income taxes | | 2,216.8 |
| | 199.7 |
| | 375.3 |
| | (283.3 | ) | | (432.4 | ) | | 2,076.1 |
|
Assets from continuing operations | | 24,158.2 |
| | 411.4 |
| | 696.8 |
| | 6,985.0 |
| | — |
| | 32,251.4 |
|
Capital expenditures from continuing operations | | 57.9 |
| | 0.6 |
| | 35.1 |
| | 81.2 |
| | — |
| | 174.8 |
|
| Depreciation and amortization | | 132.2 |
| | 1.2 |
| | 61.2 |
| | 122.1 |
| | — |
| | 316.7 |
|
| | | | | | | | | | | | | |
| Year ended June 30, 2012 | | | | | | | | | | | | |
Revenues from continuing operations | | $ | 7,449.4 |
| | $ | 1,771.4 |
| | $ | 1,676.2 |
| | $ | 5.5 |
| | $ | (307.1 | ) | | $ | 10,595.4 |
|
Earnings from continuing operations before income taxes | | 2,054.6 |
| | 171.1 |
| | 322.1 |
| | (139.0 | ) | | (307.1 | ) | | 2,101.7 |
|
Assets from continuing operations | | 23,308.0 |
| | 376.5 |
| | 685.9 |
| | 6,303.2 |
| | — |
| | 30,673.6 |
|
Capital expenditures from continuing operations | | 39.9 |
| | 1.2 |
| | 39.7 |
| | 65.4 |
| | — |
| | 146.2 |
|
| Depreciation and amortization | | 127.0 |
| | 1.0 |
| | 57.7 |
| | 133.6 |
| | — |
| | 319.3 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Employer Services | | PEO Services | | Other | | Client Fund Interest | | Total |
| Year ended June 30, 2017 | | | | | | | | | | |
| Revenues from continuing operations | | $ | 9,535.2 |
| | $ | 3,483.6 |
| | $ | (10.6 | ) | | $ | (628.4 | ) | | $ | 12,379.8 |
|
| Earnings from continuing operations before income taxes | | 2,921.3 |
| | 448.6 |
| | (210.4 | ) | | (628.4 | ) | | 2,531.1 |
|
| Assets from continuing operations | | 30,107.7 |
| | 586.8 |
| | 6,485.5 |
| | — |
| | 37,180.0 |
|
| Capital expenditures from continuing operations | | 83.0 |
| | 0.2 |
| | 165.8 |
| | — |
| | 249.0 |
|
| Depreciation and amortization | | 247.3 |
| | 1.3 |
| | 67.5 |
| | — |
| | 316.1 |
|
| | | | | | | | | | | |
| Year ended June 30, 2016 | | | | | | | | | | |
| Revenues from continuing operations | | $ | 9,211.9 |
| | $ | 3,073.1 |
| | $ | 1.9 |
| | $ | (619.1 | ) | | $ | 11,667.8 |
|
| Earnings from continuing operations before income taxes | | 2,800.4 |
| | 371.2 |
| | (317.8 | ) | | (619.1 | ) | | 2,234.7 |
|
| Assets from continuing operations | | 36,637.5 |
| | 534.6 |
| | 6,497.9 |
| | — |
| | 43,670.0 |
|
| Capital expenditures from continuing operations | | 71.1 |
| | 1.0 |
| | 93.6 |
| | — |
| | 165.7 |
|
| Depreciation and amortization | | 230.7 |
| | 1.5 |
| | 56.4 |
| | — |
| | 288.6 |
|
| | | | | | | | | | | |
| Year ended June 30, 2015 | | | | | | | | | | |
| Revenues from continuing operations | | $ | 8,815.1 |
| | $ | 2,647.2 |
| | $ | 69.8 |
| | $ | (593.6 | ) | | $ | 10,938.5 |
|
| Earnings from continuing operations before income taxes | | 2,595.4 |
| | 301.8 |
| | (232.9 | ) | | (593.6 | ) | | 2,070.7 |
|
| Assets from continuing operations | | 27,507.3 |
| | 377.7 |
| | 5,225.5 |
| | — |
| | 33,110.5 |
|
| Capital expenditures from continuing operations | | 94.8 |
| | 1.3 |
| | 75.1 |
| | — |
| | 171.2 |
|
| Depreciation and amortization | | 221.2 |
| | 1.2 |
| | 55.5 |
| | — |
| | 277.9 |
|
| | | | | United States | | Europe | | Canada | | Other | | Total | | United States | | Europe | | Canada | | Other | | Total |
| | | | | | | | | | | | |
| Year ended June 30, 2014 | | | | | | | | | | | |
| Year ended June 30, 2017 | | | | | | | | | | | |
| Revenues from continuing operations | | $ | 9,890.2 |
| | $ | 1,387.1 |
| | $ | 437.9 |
| | $ | 491.3 |
| | $ | 12,206.5 |
| | $ | 10,537.4 |
| | $ | 1,086.0 |
| | $ | 291.1 |
| | $ | 465.3 |
| | $ | 12,379.8 |
|
| Assets from continuing operations | | $ | 26,529.3 |
| | $ | 2,724.9 |
| | $ | 2,228.1 |
| | $ | 569.4 |
| | $ | 32,051.7 |
| | $ | 32,401.0 |
| | $ | 2,252.3 |
| | $ | 2,018.1 |
| | $ | 508.6 |
| | $ | 37,180.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Year ended June 30, 2013 | | | | | | | | | | | |
| Year ended June 30, 2016 | | | | | | | | | | | |
| Revenues from continuing operations | | $ | 9,114.9 |
| | $ | 1,279.1 |
| | $ | 442.4 |
| | $ | 451.2 |
| | $ | 11,287.6 |
| | $ | 9,870.0 |
| | $ | 1,063.7 |
| | $ | 284.1 |
| | $ | 450.0 |
| | $ | 11,667.8 |
|
| Assets from continuing operations | | $ | 27,327.0 |
| | $ | 2,261.2 |
| | $ | 2,166.0 |
| | $ | 497.2 |
| | $ | 32,251.4 |
| | $ | 39,194.2 |
| | $ | 2,064.3 |
| | $ | 1,949.4 |
| | $ | 462.1 |
| | $ | 43,670.0 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Year ended June 30, 2012 | | | | | | | | | | | |
| Year ended June 30, 2015 | | | | | | | | | | | |
| Revenues from continuing operations | | $ | 8,493.3 |
| | $ | 1,269.8 |
| | $ | 426.9 |
| | $ | 405.4 |
| | $ | 10,595.4 |
| | $ | 9,101.8 |
| | $ | 1,086.6 |
| | $ | 320.8 |
| | $ | 429.3 |
| | $ | 10,938.5 |
|
| Assets from continuing operations | | $ | 26,201.9 |
| | $ | 1,969.7 |
| | $ | 2,111.7 |
| | $ | 390.3 |
| | $ | 30,673.6 |
| | $ | 28,138.1 |
| | $ | 2,059.5 |
| | $ | 2,488.9 |
| | $ | 424.0 |
| | $ | 33,110.5 |
|
NOTE 16. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Summarized quarterly results of our continuing operations for the two fiscal years ended June 30, 20142017 and June 30, 20132016 are as follows:
|
| | | | | | | | | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter (A) |
| Year ended June 30, 2014 | | | | | | | | |
| | | | | | | | | |
| Revenues | | $ | 2,834.8 |
| | $ | 2,977.9 |
| | $ | 3,320.0 |
| | $ | 3,073.7 |
|
| Costs of revenues | | $ | 1,721.7 |
| | $ | 1,769.8 |
| | $ | 1,884.4 |
| | $ | 1,845.6 |
|
| Gross profit | | $ | 1,113.1 |
| | $ | 1,208.1 |
| | $ | 1,435.6 |
| | $ | 1,228.1 |
|
| Net earnings from continuing operations | | $ | 327.7 |
| | $ | 375.8 |
| | $ | 510.4 |
| | $ | 288.7 |
|
| Basic earnings per share from continuing operations | | $ | 0.68 |
| | $ | 0.79 |
| | $ | 1.07 |
| | $ | 0.60 |
|
| Diluted earnings per share from continuing operations | | $ | 0.68 |
| | $ | 0.78 |
| | $ | 1.06 |
| | $ | 0.60 |
|
| | | | | | | | | |
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter (B) |
| Year ended June 30, 2013 | | | | | | | | |
| | | | | | | | | |
| Revenues | | $ | 2,632.7 |
| | $ | 2,742.8 |
| | $ | 3,109.3 |
| | $ | 2,802.8 |
|
| Costs of revenues | | $ | 1,583.7 |
| | $ | 1,621.6 |
| | $ | 1,743.2 |
| | $ | 1,689.9 |
|
| Gross profit | | $ | 1,049.0 |
| | $ | 1,121.2 |
| | $ | 1,366.1 |
| | $ | 1,112.9 |
|
| Net earnings from continuing operations | | $ | 301.7 |
| | $ | 350.9 |
| | $ | 481.6 |
| | $ | 224.0 |
|
| Basic earnings per share from continuing operations | | $ | 0.62 |
| | $ | 0.73 |
| | $ | 1.00 |
| | $ | 0.46 |
|
| Diluted earnings per share from continuing operations | | $ | 0.62 |
| | $ | 0.72 |
| | $ | 0.99 |
| | $ | 0.46 |
|
|
| | | | | | | | | | | | | | | | |
| Year ended June 30, 2017 | | First Quarter (A) | | Second Quarter (B) | | Third Quarter (C) | | Fourth Quarter (D) |
| | | | | | | | | |
| Revenues from continuing operations | | $ | 2,916.9 |
| | $ | 2,987.3 |
| | $ | 3,410.8 |
| | $ | 3,064.8 |
|
| Gross profit from continuing operations | | $ | 1,173.3 |
| | $ | 1,219.5 |
| | $ | 1,499.8 |
| | $ | 1,217.6 |
|
| Earnings from continuing operations before income taxes | | $ | 528.7 |
| | $ | 786.2 |
| | $ | 827.9 |
| | $ | 388.4 |
|
| Net earnings from continuing operations | | $ | 368.7 |
| | $ | 510.9 |
| | $ | 587.7 |
| | $ | 265.8 |
|
| Net earnings | | $ | 368.7 |
| | $ | 510.9 |
| | $ | 587.9 |
| | $ | 265.8 |
|
| Basic per common share amounts: | | | | | | | | |
| Basic earnings per share from continuing operations | | $ | 0.82 |
| | $ | 1.14 |
| | $ | 1.32 |
| | $ | 0.60 |
|
| Diluted per common share amounts: | | | | | | | | |
| Diluted earnings per share from continuing operations | | $ | 0.81 |
| | $ | 1.13 |
| | $ | 1.31 |
| | $ | 0.59 |
|
|
| | | | | | | | | | | | | | | | |
| Year ended June 30, 2016 | | First Quarter (E) | | Second Quarter (F) | | Third Quarter | | Fourth Quarter (G) |
| | | | | | | | | |
| Revenues from continuing operations | | $ | 2,714.0 |
| | $ | 2,807.0 |
| | $ | 3,248.6 |
| | $ | 2,898.2 |
|
| Gross profit from continuing operations | | $ | 1,067.5 |
| | $ | 1,124.5 |
| | $ | 1,435.9 |
| | $ | 1,199.7 |
|
| Earnings from continuing operations before income taxes | | $ | 505.0 |
| | $ | 507.9 |
| | $ | 794.8 |
| | $ | 427.0 |
|
| Net earnings from continuing operations | | $ | 337.5 |
| | $ | 341.4 |
| | $ | 532.5 |
| | $ | 282.0 |
|
| Net loss from discontinued operations | | $ | (0.9 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
| Net earnings | | $ | 336.6 |
| | $ | 341.4 |
| | $ | 532.5 |
| | $ | 282.0 |
|
| Basic per common share amounts: | | | | | | | | |
| Basic earnings per share from continuing operations | | $ | 0.73 |
| | $ | 0.75 |
| | $ | 1.17 |
| | $ | 0.62 |
|
| Diluted per common share amounts: | | | | | | | | |
| Diluted earnings per share from continuing operations | | $ | 0.72 |
| | $ | 0.74 |
| | $ | 1.17 |
| | $ | 0.62 |
|
(A) NetEarnings from continuing operations before income taxes; net earnings from continuing operations,operations; and basic earnings per share from continuing operations and diluted earnings per shareEPS from continuing operations include the impact of separation costs related tocharge for the planned separation of the Company's Dealer Services business, whichService Alignment Initiative. This decreased earnings from continuing operations before income taxes by $39.9 million, net earnings from continuing operations by $14.9$24.8 million and both
basic and diluted earnings per share from continuing operations by $0.03.$0.05.
(B) NetEarnings from continuing operations before income taxes; net earnings from continuing operations; and basic and diluted EPS from continuing operations include the gain on the sale of the COBRA and CHSA businesses. This increased earnings from continuing operations before income taxes by $205.4 million, net earnings from continuing operations and diluted earnings per share from continuing operations includes the impact of a goodwill impairment charge related to ADP AdvancedMD, which decreased net earnings from continuing operations by $42.7$121.4 million, and both basic and diluted earnings per share from continuing operations by $0.09.$0.27.
(C) Earnings from continuing operations before income taxes; net earnings from continuing operations; and basic and diluted EPS from continuing operations include charges for the Service Alignment Initiative. This decreased earnings from continuing operations before income taxes by $0.6 million, and net earnings from continuing operations and net earnings by $0.4 million, and had no impact on basic and diluted earnings per share from continuing operations.
(D) Earnings from continuing operations before income taxes; net earnings from continuing operations; and basic and diluted EPS from continuing operations include charges for the Workforce Optimization Effort and Service Alignment Initiative. The combined impact decreased earnings from continuing operations before income taxes by $43.5 million and, net earnings from continuing operations and net earnings by $27.1 million and basic and diluted earnings per share from continuing operations by $0.06.
(E) Earnings from continuing operations before income taxes; net earnings from continuing operations; net earnings; and basic and diluted EPS from continuing operations include the gain on the sale of AMD. This increased earnings from continuing operations before income taxes by $29.1 million, net earnings from continuing operations and net earnings by $21.8 million, and basic and diluted earnings per share from continuing operations by $0.05
(F) Earnings from continuing operations before income taxes; net earnings from continuing operations; net earnings; and basic and diluted EPS from continuing operations include the gain on sale of a building. This increased earnings from continuing operations before income taxes by $13.9 million net earnings from continuing operations and net earnings by $8.6 million and basic and diluted earnings per share from continuing operations by $0.02.
(G) Earnings from continuing operations before income taxes; net earnings from continuing operations; net earnings; and basic and diluted EPS from continuing operations include the charge for the Workforce Optimization Effort. This decreased earnings from continuing operations before income taxes by $48.2 million net earnings from continuing operations and net earnings by $31.8 million and basic and diluted earnings per share from continuing operations by $0.07.
NOTE 17. SUBSEQUENT EVENTS
With the exception of the repayment of commercial paper obligation on July 1, 2014, the July 2014 increase in the commercial paper program discussed in Note 10, and the item listed below, there are no further subsequent events for disclosure.
The Company's subsidiary captive insurance company, ADP Indemnity, paid a premium of $167.9$235.0 million in July 20142017 to enter into a reinsurance arrangement with ACE American Insurance CompanyChubb to cover substantially all losses for the fiscal 20152018 policy year on terms substantially similar to the fiscal 20142017 reinsurance policy to cover losses 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.
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 “Exchange Act”). This “Controls and Procedures” section should be read in conjunction with the report of Deloitte & Touche LLP that appears on page 77 ofin 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, 20142017 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 Securities Exchange Act of 1934, as amended)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'sADP’s internal control over financial reporting as of June 30, 20142017 based upon criteria set forth in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that ADP'sADP’s internal control over financial reporting was effective as of June 30, 2014.2017.
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.
|
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| /s/ Carlos A. Rodriguez |
| Carlos A. Rodriguez |
| President and Chief Executive Officer |
| |
| /s/ Jan Siegmund |
| Jan Siegmund |
| Chief Financial Officer |
Roseland, New Jersey
August 8, 20144, 2017
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, 20142017 that have materially affected, or are reasonably likely to materially affect, ADP's internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
We have audited the internal control over financial reporting of Automatic Data Processing, Inc. and subsidiaries (the "Company") as of June 30, 2014,2017, based on criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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'sManagement’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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2014,2017, based on the criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and consolidated financial statement schedule as of and for the year ended June 30, 20142017 of the Company and our report dated August 8, 20144, 2017, expressed an unqualified opinion on those consolidated financial statements and consolidated financial statement schedule.
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| /s/ Deloitte & Touche LLP |
| Parsippany, New Jersey |
August 8, 20144, 2017
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The executive officers of the Company, their ages, positions, and the period during which they have been employed by ADP are as follows:
| | | | | Employed by | | Employed by |
| Name | | Age | | Position | | ADP Since | | Age | | Position | | ADP Since |
| Steven J. Anenen | | 61 | | President, Dealer Services | | 1975 | |
| Brock Albinson | | | 42 | | Corporate Controller and Principal Accounting Officer | | 2007 |
| John Ayala | | 47 | | President, Employer Services - Small Business | | 2002 | | 50 | | President, Major Account Services and ADP Canada | | 2002 |
| Maria Black | | | 43 | | President, Small Business Solutions and Human Resources | | 1996 |
| | | Services, Retirement Services and Insurance Services | | | Outsourcing | |
| Mark D. Benjamin | | 43 | | President, Global Enterprise Solutions | | 1992 | |
| Maria Black | | 40 | | President, Employer Services - TotalSource | | 1996 | |
| Michael A. Bonarti | | 48 | | Vice President, General Counsel and Secretary | | 1997 | | 51 | | Vice President, General Counsel and Secretary | | 1997 |
| Michael L. Capone | | 47 | | Vice President and Chief Information Officer | | 1988 | |
| Deborah L. Dyson | | 48 | | Vice President, Client Experience and | | 1988 | | 51 | | Vice President, Client Experience and | | 1988 |
| | | Continuous Improvement | | | Continuous Improvement | |
| Michael C. Eberhard | | 52 | | Vice President and Treasurer | | 1998 | | 55 | | Vice President and Treasurer | | 1998 |
| Edward B. Flynn, III | | 54 | | Vice President, Employer Services - Sales and Marketing | | 1988 | | 57 | | President, Global Enterprise Solutions | | 1988 |
| Regina R. Lee | | 57 | | Vice President | | 1982 | |
| Dermot J. O'Brien | | 48 | | Chief Human Resources Officer | | 2012 | | 51 | | Chief Human Resources Officer | | 2012 |
| Thomas Perrotti | | | 48 | | President, Worldwide Sales and Marketing | | 1993 |
| Douglas Politi | | 52 | | President, Added Value Services | | 1992 | | 55 | | President, Added Value Services | | 1992 |
| Anish D. Rajparia | | 43 | | President, Major Account Services and ADP Canada | | 2002 | |
| Carlos A. Rodriguez | | 50 | | President and Chief Executive Officer | | 1999 | | 53 | | President and Chief Executive Officer | | 1999 |
| Alan Sheiness | | 56 | | Corporate Controller and Principal Accounting Officer | | 1984 | |
| Stuart Sackman | | | 56 | | Vice President, Global Product and Technology | | 1992 |
| Jan Siegmund | | 50 | | Chief Financial Officer | | 1999 | | 53 | | Chief Financial Officer | | 1999 |
| Joe Timko | | 54 | | Chief Strategy Officer | | 2013 | |
| Donald Weinstein | | | 48 | | Chief Strategy Officer | | 2006 |
Steven J. Anenen
Brock Albinson joined ADP in 1975. He has2007. 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, Dealer Services since 2004.Corporate Finance from January 2011 to December 2011, and as Vice President, Financial Policy from March 2007 to January 2011.
John Ayala joined ADP in 2002. Prior to his appointment as President, EmployerMajor Account Services -and ADP Canada in January 2017, he served as President, Small Business Services, Retirement Services and Insurance Services infrom July 2014 he servedto December 2016, as Vice President, Client Experience and Continuous Improvement from 2013November 2012 to June 2014, as Senior Vice President, Employer Services and Operations - Small Business Services from February 2012 to October 2012, as President, TotalSource from July 2011 to January 2013,2012, and as Senior Vice President, Service and Operations, TotalSource from 2008 to 2011.
Mark D. Benjamin joined ADP in 1992. Prior to his appointment as President, Global Enterprise Solutions, which includes Employer Services - International, National Account Services, Benefit Services, TheRightThing, GlobalView and Streamline, in July 2013, he served as President, Employer Services International from July 2011 to June 2013, and as Senior Vice President, Small Business Services and TotalSource from 2008 to June 2011.
Maria Black joined ADP in 1996. Prior to her appointment as President, Employer Services -Small Business Solutions and Human Resources Outsourcing in January 2017, she served as President, ADP TotalSource infrom July 2014 she servedto December 2016, as General Manager, ADP United Kingdom from JulyApril 2013 to June 2014, and as General Manager, Employer Services - TotalSource Western Central Region from January 2008 to JuneMarch 2013.
Michael A. Bonarti joined ADP in 1997. Prior to his appointmentHe has served as Vice President, General Counsel and Secretary in June 2010, he served as Staff Vice President and Associate General Counsel from November 2007 to Junesince July 2010.
Michael L. Capone joined ADP in 1988. He has served as Vice President and Chief Information Officer since 2008.
Deborah L. Dyson joined ADP in 1988. Prior to her appointment as Vice President, Client Experience and Continuous Improvement in July 2014, she served as Division Vice President / General Manager, Employer Services - Major Account Services South Service Center from July 2012 to June 2014, and as Division Vice President / General Manager, Employer Services - Major Account Services Northwest Service Center from July 2006 to June 2012.
Michael C. Eberhard joined ADP in 1998. Prior to his appointmentHe has served as Vice President and Treasurer in 2009, he served as Staff Vice President and Assistant Treasurer from 2007 tosince November 2009.
Edward B. Flynn, III joined ADP in 1988. Prior to his appointment as President, Global Enterprise Solutions in January 2017, he served as Executive Vice President, Employer Services -Worldwide Sales and Marketing in 2013, he servedfrom November 2012 to December 2016, and as Vice President, Employer Services - Sales from April 2009 to 2013, and as President, Employer Services International from 2008 to 2009.October 2012.
Regina R. Lee joined ADP in 1982. Prior to announcing her retirement effective December 31, 2014, she served as President, Employer Services - Major Account Services and ADP Canada from 2013 to June 2014, as President, Employer Services - National Account Services, Major Account Services, ADP Canada, and GlobalView from 2011 to June 2013, as President, Employer Services - Small Business Services and Major Account Services from 2010, and as President, Employer Services - National Account Services and Employer Services International from 2008 to 2010.
Dermot J. O'BrienO’Brien joined ADP in 2012 as Chief Human Resources Officer. Prior to joining ADP, he was Executive Vice President of Human Resources at TIAA-CREFTIAA from 2003 to 2012.
Thomas Perrotti joined ADP in 1993. Prior to his appointment as President, Worldwide Sales and Marketing in January 2017, he served as President, Major Account Services and ADP Canada from July 2015 to December 2016, as Corporate Vice President and Senior Vice President, Service and Operations, Major Account Services from July 2014 to June 2015, as Senior Vice President, Service & Operations, Small Business Services from April 2013 to June 2014, as Senior Vice President, Sales, Small Business Services from April 2011 to March 2013, and as Division Vice President, Global Sales Operations, Employer Services from November 2009 to March 2011.
Douglas Politi joined ADP in 1992. Prior to his appointment as President, Added Value Services in February 2013, he served as Senior Vice President, CFO Suite (AVS) from October 2011 to January 2013, and as Senior Vice President, Retirement Services from September 2006 to September 2011.
Anish D. Rajparia joined ADP in 2002. Prior to his appointment as President, Employer Services - Major Account Services and ADP Canada in July 2014, he served as President, Employer Services - Small Business Services, TotalSource, Retirement Services, and Insurance Services from 2012 to June 2014, as President, Employer Services - Small Business Services, TotalSource, and Retirement Services from 2011 to 2012, and as President, Employer Services International from 2009 to 2011.
Carlos A. Rodriguez joined ADP in 1999. Prior to his appointment in November 2011 to President and Chief Executive Officer, he served as President and Chief Operating Officer from JuneMay 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, and as President, Employer Services - Small Business Services from 2007 to 2010.2011.
Alan SheinessStuart Sackman joined ADP in 1984. He has1992. Prior to his appointment as Vice President, Global Product and Technology in March 2015, he served as Corporate ControllerVice President and Principal Accounting Officer since 2007.General Manager of Multinational Corporations Services from June 2012 to February 2015, and as Division Vice President and General Manager of the National Account Services’ East National Service Center from February 2008 to May 2012.
Jan Siegmund joined ADP in 1999. Prior to his appointment as Chief Financial Officer in November 2012, he served as President, Added Value Services and Chief Strategy Officer from April 2009 to 2012, and as President, Added Value Services from 2007 to 2009.October 2012.
Joe TimkoDonald Weinstein joined ADP in June 20132006. Prior to his appointment as Chief Strategy Officer. Prior to joining ADP,Officer in December 2015, he was Executiveserved as Senior Vice President, Chief Technology & Strategy Officer at Pitney Bowes Inc.Product Management from April 2012October 2010 to June 2013, ChiefNovember 2015, and as Division Vice President, Strategy & Innovation Officer at Pitney BowesMarketing from February 2010September 2007 to April 2012, and a partner in the Technology, Telecom & Industrial Sector practices at McKinsey & Company from 2001 toSeptember 2010.
Directors
See “Election of Directors” in the Proxy Statement for the Company's 2014Company’s 2017 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
See “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for the Company's 2014Company’s 2017 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'sADP’s website at www.adp.com under “Ethics”“Investor Relations” in the “About ADP”“Corporate Governance” section. Any amendment to or waivers from the code of ethics will be disclosed on our website within four business days following the date of the amendment or waiver.
Audit Committee; Audit Committee Financial Expert
See “Corporate Governance - Committees of the Board of Directors” and “Audit Committee Report” in the Proxy Statement for the Company's 2014Company’s 2017 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Material Changes in Nominating Procedures
See "Stockholder Proposals - Proxy Access" in the Proxy Statement for the Company's 2017 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 11. Executive Compensation
See “Corporate Governance,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation of Executive Officers” and “Election of Directors - Compensation“Compensation of Non-Employee Directors” in the Proxy Statement for the Company's 2014Company’s 2017 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 “Election of Directors - Security“Security Ownership of Certain Beneficial Owners and Managers” and “Election of Directors - Equity“Equity Compensation Plan Information” in the Proxy Statement for the Company's 2014Company’s 2017 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 - CorporateDirectors” and “Corporate Governance” in the Proxy Statement for the Company's 2014Company’s 2017 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 20142017 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements
The following report and consolidated financial statementsConsolidated Financial Statements of the Company are contained in Part II, Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Statements of Consolidated Earnings - years ended June 30, 2014, 20132017, 2016 and 20122015
Statements of Consolidated Comprehensive Income - years ended June 30, 2017, 2016 and 2015
Consolidated Balance Sheets - June 30, 20142017 and 20132016
Statements of Consolidated Stockholders' Equity - years ended June 30, 2014, 20132017, 2016 and 20122015
Statements of Consolidated Cash Flows - years ended June 30, 2014, 20132017, 2016 and 20122015
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
|
| | | |
| | | | Page in Form 10-K |
| | Schedule II - Valuation and Qualifying Accounts | | |
All other Schedules have been omitted because they are inapplicable, or 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:
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| 3.1 | Amended and Restated Certificate of Incorporation dated November 11, 1998 - incorporated by reference to Exhibit 3.1 to the Company's Registration Statement No. 333-72023 on Form S-4 filed with the Commission on February 9, 1999 |
| 3.2 | Amended and Restated By-laws of the Company - incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated April 9, 2014August 3, 2016 |
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| 4.1 | 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 |
| 4.2 | Form of First Supplemental Indenture between Automatic Data Processing, Inc. and Wells Fargo Bank, National Association, as trustee - incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated September 15, 2015 |
| 4.3 | Form of 2.250% Senior Note due 2020 - incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated September 15, 2015 |
| 4.4 | Form of 3.375% Senior Note due 2025 - incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K dated September 15, 2015 |
| 10.1 | 364-Day Credit Agreement, dated as of June 14, 2017, among Automatic Data Processing, Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., BNP Paribas, Wells Fargo Bank, N.A., Citibank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Syndication Agents, and Deutsche Bank Securities Inc. and Barclays Bank PLC, as Documentation Agents - incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 14, 2017 |
| 10.2 | Five-Year Credit Agreement, dated as of June 14, 2017, among Automatic Data Processing, Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., BNP Paribas, Wells Fargo Bank, N.A., Citibank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Syndication Agents, and Deutsche Bank Securities Inc. and Barclays Bank PLC, as Documentation Agents - incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 14, 2017 |
| 10.3 | Five-Year Credit Agreement, dated as of June 15, 2016, among Automatic Data Processing, Inc., the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., BNP Paribas, Wells Fargo Bank, N.A., Citibank, N.A.and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Syndication Agents, and Deutsche Bank Securities Inc. and Barclays Bank PLC, as Documentation Agents - incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K dated June 15, 2016 |
| 10.4 | Separation and Distribution Agreement, dated as of March 20, 2007, between Automatic Data Processing, Inc. and Broadridge Financial Solutions, LLC - incorporated by reference to Exhibit 10.1 to the Company'sCompany’s Current Report on Form 8-K dated March 21, 2007 |
10.210.5 | Separation and Distribution Agreement, dated September 29, 2014, by and between Automatic Data Processing, Inc. and CDK Global Holdings, LLC - incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 1, 2014 |
| 10.6 | Separation Agreement and General Release, dated November 14, 2011,April 21, 2014, by and between Gary C. ButlerRegina R. Lee and Automatic Data Processing, Inc. - incorporated by reference to Exhibit 10.1 to the Company'sCompany’s Current Report on Form 8-K dated November 14, 2011 |
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10.3 | Letter Agreement, dated as of December 14, 2011, between Automatic Data Processing, Inc., and Carlos Rodriguez - incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 14, 2011(Management Contract) |
10.4 | Amended and Restated Supplemental Officers Retirement Plan - incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated November 10, 2009 (Management Compensatory Plan) |
10.5 | Form of Performance Stock Unit Award Agreement under the 2008 Omnibus Award Plan- incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2013) (Management Compensatory Plan) |
10.6 | 2000 Stock Option Plan - incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009 (Management Compensatory Plan)April 21, 2014 |
| 10.7 | Automatic Data Processing, Inc. Deferred Compensation Plan, as Amended and Restated Effective July 25, 2014 (Management Compensatory Plan) |
10.8 | Automatic Data Processing, Inc. Change in Control Severance Plan for Corporate Officers, as amended (Management Compensatory Plan) |
10.9 | Amended and Restated Employees' Saving-Stock Option Plan - incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2005 (Management Compensatory Plan) |
10.10 | 2003 Director Stock Plan - incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-147377 on Form S-8 filed with the Commission on November 14, 2007 (Management Compensatory Plan) |
| Amended and Restated Supplemental Officers Retirement Plan (Management Compensatory Plan) |
| 10.9 | Automatic Data Processing, Inc. Deferred Compensation Plan, as Amended and Restated Effective September 15, 2016 - incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016 (Management Compensatory Plan) |
| 10.10 | 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) |
| 10.11 | Automatic Data Processing, Inc. Amended and Restated Employees'Employees’ Savings-Stock Purchase Plan - incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014 (Management Compensatory Plan) |
| 10.12 | 364-Day Credit Agreement, dated as of June 18, 2014, among Automatic Data Processing, Inc., the Borrowing Subsidiaries thereto, 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 Citibank, N.A., as Syndication Agents, and Deutsche Bank Securities Inc. and Barclays Bank PLC, as Documentation Agents. Executive Retirement Plan - incorporated by reference to Exhibit 10.1210.1 to the Company's CurrentCompany’s Quarterly Report on Form 8-K dated June 18, 201410-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan) |
| 10.13 | Five-Year Credit Agreement, dated as of June 18, 2014, among Automatic Data Processing, Inc., the Borrowing Subsidiaries thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, J.P. Morgan Europe Limited, as London Agent, JP Morgan Chase Bank, N.A., Toronto Branch, as Canadian Agent, Bank of America, N.A., BNP Paribas, Wells Fargo Bank, N.A., Retirement and Citibank, N.A., as Syndication Agents, and Deutsche Bank Securities Inc. and Barclays Bank PLC, as Documentation AgentsSavings Restoration Plan - incorporated by reference to Exhibit 10.1510.2 to the Company's CurrentCompany’s Quarterly Report on Form 8-K dated June 18, 201410-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan) |
| 10.14 | Amended and Restated Five-Year Credit Agreement, dated as of June 19, 2013, 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., Barclays Bank PLC, and Citibank, N.A., as Syndication Agents, and Deutsche Bank Securities Inc., as Documentation Agent. Corporate Officer Severance Plan - incorporated by reference to Exhibit 10.1810.3 to the Company's CurrentCompany’s Quarterly Report on Form 8-K dated June 19, 201310-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan) |
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| 10.15 | Automatic Data Processing, Inc. 2000 Stock Option Plan - incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2009 (Management Compensatory Plan) |
| 10.16 | 2000 Stock Option Grant Agreement (Form for Employees) for grants prior to August 14, 2008 - incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan) |
10.16 | 2000 Stock Option Grant Agreement (Form for French Associates) for grants prior to August 14, 2008 - incorporated by reference to Exhibit 10.2 to the Company'sCompany’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan) |
| 10.17 | 2000 Stock Option Grant Agreement (Form for Non-Employee Directors) for grants prior to August 14, 2008 - incorporated by reference to Exhibit 10.3 to the Company'sCompany’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 (Management Compensatory Plan) |
| 10.18 | 2000 Stock Option Grant Agreement (Form for Employees) for grants beginning August 14, 2008 - incorporated by reference to Exhibit 10.25 to the Company's Current Report on Form 8-K dated August 13, 2008 (Management Compensatory Plan) |
10.19 | Non-Employee Director Compensation Summary Sheet - (Management Compensatory Plan) |
10.20 | Separation Agreement and Release, dated November 12, 2012, by and between Christopher R. Reidy and Automatic Data Processing, Inc. - incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 12, 2012 |
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| |
10.21 | Separation Agreement and Release, dated April 21, 2014, by and between Regina R. Lee and Automatic Data Processing, Inc. - incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 21, 2014 |
10.22 | 2008 Omnibus Award Plan - incorporated by reference to Appendix A to the Company'sCompany’s Proxy Statement for its 2008 Annual Meeting of Stockholders filed with the Commission on September 26, 2008 (Management Compensatory Plan) |
10.2310.19 | 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'sCompany’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012 (Management Compensatory Plan) |
10.2410.20 | Form of Restricted Stock Award AgreementAmended French Sub Plan under the 2008 Omnibus Award Plan effective as of April 6, 2016 (Management Compensatory Plan) - incorporated by reference to Exhibit 10.3110.22 to the Company's QuarterlyCompany’s Annual Report on Form 10-Q10-K for the fiscal quarteryear ended December 31, 2008June 30, 2016 (Management Compensatory Plan) |
10.25 | Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan (Form for French Employees) for grants prior to January 26, 2012 - incorporated by reference to Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2008 (Management Compensatory Plan) |
10.26 | Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan (Form for French Employees) for grants beginning January 26, 2012 - incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012 (Management Compensatory Plan) |
10.2710.21 | Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan (Form for Non- Employee Directors) for grants prior to November 12, 2008 - incorporated by reference to Exhibit 10.27 to the Company'sCompany’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2008 (Management Compensatory Plan) |
10.2810.22 | 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) |
| 10.23 | Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan (Form for Non- Employee Directors) for grants beginning November 12, 2008 - incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014 (Management Compensatory Plan) |
10.2910.24 | 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) |
10.3010.25 | Form of DeferredPerformance Stock Unit Award Agreement under the 2008 Omnibus Award Plan-Plan - incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2013 (Management Compensatory Plan) |
| 10.26 | Form of Performance Stock Unit Award Agreement under the 2008 Omnibus Award Plan (Form for Corporate Officers) - incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan) |
| 10.27 | Form of Restricted Stock Award Agreement under the 2008 Omnibus Award Plan (Form for Corporate Officers) - incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan) |
| 10.28 | Form of Stock Option Grant under the 2008 Omnibus Award Plan (Form for Corporate Officers) - incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015 (Management Compensatory Plan) |
| 10.29 | Form of Performance-Based Restricted Stock Unit Award Agreement under the 2008 Omnibus Award Plan - incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2015 (Management Compensatory Plan) |
| 10.30 | Form of Performance Stock Unit Award Agreement under the 2008 Omnibus Award Plan (Form for Corporate Officers) - incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 20122016 (Management Compensatory Plan) |
| 10.31 | 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) |
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| |
| 10.32 | Form of Performance-Based Restricted Stock Unit Award Agreement under the 2008 Omnibus Award Plan - incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (Management Compensatory Plan) |
| Form of Performance Stock Unit Award Agreement under the 2008 Omnibus Award Plan for grants beginning September 1, 2017 (Management Compensatory Plan) |
| Form of Stock Option Grant Agreement under the 2008 Omnibus Award Plan for grants beginning September 1, 2017 (Management Compensatory Plan) |
| Form of Restricted Stock and Restricted Stock Unit Award Agreement under the 2008 Omnibus Award Plan for grants beginning September 1, 2017 (Management Compensatory Plan) |
| 21 | Subsidiaries of the Company |
| Consent of Independent Registered Public Accounting Firm |
| Certification by Carlos A. Rodriguez pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 |
| Certification by Jan Siegmund pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 |
| Certification by Carlos A. Rodriguez pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Certification by Jan Siegmund pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL instance document |
| 101.SCH | XBRL taxonomy extension schema document |
| 101.CAL | XBRL taxonomy extension calculation linkbase document |
| 101.LAB | XBRL taxonomy label linkbase document |
| 101.PRE | XBRL taxonomy extension presentation linkbase document |
| 101.DEF | XBRL taxonomy extension definition linkbase document |
AUTOMATIC DATA PROCESSING, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
| | | Column A | | Column B | | Column C | | Column D | | Column E | | Column B | | Column C | | Column D | | Column E |
| | | | | Additions | | | | | | | | Additions | | | | |
| | | | | (1) | | (2) | | | | | | | | (1) | | (2) | | | | |
| | | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts | | Deductions | | Balance at end of period | | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts (A) | | Deductions | | Balance at end of period |
| Year ended June 30, 2014: | | | | | | | | | | | |
| Year ended June 30, 2017: | | | | | | | | | | | |
| Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | |
| Current | | $ | 50,201 |
| | $ | 17,796 |
| | $ | — |
| | $ | (12,278 | ) | (A) | | $ | 55,719 |
| | $ | 38,111 |
| | $ | 27,660 |
| | $ | 1,692 |
| | $ | (17,901 | ) | (B) | | $ | 49,561 |
|
| Long-term | | $ | 9,033 |
| | $ | 2,964 |
| | $ | — |
| | $ | (3,639 | ) | (A) | | $ | 8,358 |
| | $ | 547 |
| | $ | 260 |
| | $ | 89 |
| | $ | (93 | ) | (B) | | $ | 803 |
|
| Deferred tax valuation allowance | | $ | 48,792 |
| | $ | 6,621 |
| | $ | 3,935 |
| (B) | | $ | (15,305 | ) | | $ | 44,043 |
| | $ | 15,369 |
| | $ | 892 |
| | $ | (1,754 | ) | | $ | (5,101 | ) | | $ | 9,406 |
|
| Year ended June 30, 2013: | | | | | | | | | | | |
| Year ended June 30, 2016: | | | | | | | | | | | |
| Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | |
| Current | | $ | 46,042 |
| | $ | 19,664 |
| | $ | — |
| | $ | (15,505 | ) | (A) | | $ | 50,201 |
| | $ | 35,493 |
| | $ | 18,626 |
| | $ | (265 | ) | | $ | (15,743 | ) | (B) | | $ | 38,111 |
|
| Long-term | | $ | 8,812 |
| | $ | 2,687 |
| | $ | — |
| | $ | (2,466 | ) | (A) | | $ | 9,033 |
| | $ | 634 |
| | $ | 216 |
| | $ | 93 |
| | $ | (395 | ) | (B) | | $ | 547 |
|
| Deferred tax valuation allowance | | $ | 54,127 |
| | $ | 3,887 |
| | $ | (842 | ) | (B) | | $ | (8,380 | ) | | $ | 48,792 |
| | $ | 23,707 |
| | $ | 1,364 |
| | $ | (1,022 | ) | | $ | (8,680 | ) | | $ | 15,369 |
|
| Year ended June 30, 2012: | | | | | | | | | | | |
| Year ended June 30, 2015: | | | | | | | | | | | |
| Allowance for doubtful accounts: | | | | | | | | | | | | | | | | | | | | |
| Current | | $ | 50,065 |
| | $ | 23,472 |
| | $ | — |
| | $ | (27,495 | ) | (A) | | $ | 46,042 |
| | $ | 42,749 |
| | $ | 15,554 |
| | $ | (1,862 | ) | | $ | (20,948 | ) | (B) | | $ | 35,493 |
|
| Long-term | | $ | 9,438 |
| | $ | 2,106 |
| | $ | — |
| | $ | (2,732 | ) | (A) | | $ | 8,812 |
| | $ | 8,349 |
| | $ | 746 |
| | $ | (39 | ) | | $ | (8,422 | ) | (B) | | $ | 634 |
|
| Deferred tax valuation allowance | | $ | 62,084 |
| | $ | 4,002 |
| | $ | (5,465 | ) | (B) | | $ | (6,494 | ) | | $ | 54,127 |
| | $ | 35,542 |
| | $ | 1,551 |
| | $ | (3,801 | ) | | $ | (9,584 | ) | | $ | 23,707 |
|
(A) Includes amounts related to foreign exchange fluctuation.
(B) Doubtful accounts written off, less recoveries on accounts previously written off.
(B) Includes amounts related to foreign exchange fluctuation.
SIGNATURES
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.
|
| | | |
| | AUTOMATIC DATA PROCESSING, INC. |
| | (Registrant) |
| |
August 8, 20144, 2017 | By | /s/ Carlos A. Rodriguez | |
| | | Carlos A. Rodriguez |
| | | President and Chief Executive Officer |
|
| | | | |
| Signature | | Title | | Date |
| | | | | |
| | | | |
| /s/ Carlos A. Rodriguez | | President and Chief Executive | | August 8, 20144, 2017 |
| (Carlos A. Rodriguez) | | Officer, Director | | |
| | | (Principal Executive Officer) | | |
| | | | | |
| /s/ Jan Siegmund | | Chief Financial Officer | | August 8, 20144, 2017 |
| (Jan Siegmund) | | (Principal Financial Officer) | | |
| | | | | |
/s/ Alan SheinessBrock Albinson | | Corporate Controller | | August 8, 20144, 2017 |
(Alan Sheiness)(Brock Albinson) | | (Principal Accounting Officer) | | |
| | | | | |
/s/ Ellen R. AlemanyPeter Bisson | | Director | | August 8, 20144, 2017 |
(Ellen R. Alemany) | | | | |
| | | | |
/s/ Gregory D. Brenneman | | Director | | August 8, 2014 |
(Gregory D. Brenneman) | | | | |
| | | | |
/s/ Leslie A. Brun | | Director | | August 8, 2014 |
(Leslie A. Brun)(Peter Bisson) | | | | |
| | | | | |
| /s/ Richard T. Clark | | Director | | August 8, 20144, 2017 |
| (Richard T. Clark) | | | | |
| | | | | |
| /s/ Eric C. Fast | | Director | | August 8, 20144, 2017 |
| (Eric C. Fast) | | | | |
| | | | | |
| /s/ Linda R. Gooden | | Director | | August 8, 20144, 2017 |
| (Linda R. Gooden) | | | | |
| | | | | |
| /s/ Michael P. Gregoire | | Director | | August 8, 20144, 2017 |
| (Michael P. Gregoire) | | | | |
|
| | | | |
| /s/ R. Glenn Hubbard | | Director | | August 8, 20144, 2017 |
| (R. Glenn Hubbard) | | | | |
| | | | | |
| /s/ John P. Jones | | Director | | August 8, 20144, 2017 |
| (John P. Jones) | | | | |
| | | | | |
/s/ Gregory L. SummeWilliam J. Ready | | Director | | August 8, 20144, 2017 |
(Gregory L. Summe)(William J. Ready) | | | | |
| | | | |
| /s/ Sandra S. Wijnberg | | Director | | August 4, 2017 |
| (Sandra S. Wijnberg) | | | | |
