Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 953K
13: 10-Q Quarterly Report -- q1fy2110q PDF 559K
7: EX-10.1 Material Contract HTML 92K
8: EX-10.2 Material Contract HTML 84K
9: EX-31.1 Certification -- §302 - SOA'02 HTML 27K
10: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
11: EX-32.1 Certification -- §906 - SOA'02 HTML 24K
12: EX-32.2 Certification -- §906 - SOA'02 HTML 24K
15: R1 Cover page HTML 75K
16: R2 Statements of Consolidated Earnings HTML 87K
17: R3 Statements of Consolidated Earnings HTML 24K
(Parenthetical)
18: R4 Statements of Consolidated Comprehensive Income HTML 72K
19: R5 Consolidated Balance Sheets HTML 138K
20: R6 Consolidated Balance Sheets (Parenthetical) HTML 47K
21: R7 Statements of Consolidated Cash Flows HTML 121K
22: R8 Basis of Presentation HTML 27K
23: R9 New Accounting Pronouncements HTML 37K
24: R10 Revenue HTML 76K
25: R11 Earnings per Share (Eps) HTML 43K
26: R12 Other (Income)/Expense, Net HTML 37K
27: R13 Corporate Investments and Funds Held For Clients HTML 170K
28: R14 Leases HTML 48K
29: R15 Goodwill and Intangible Assets, net HTML 54K
30: R16 Short-term Financing HTML 38K
31: R17 Debt HTML 39K
32: R18 Employee Benefit Plans HTML 88K
33: R19 Income Taxes HTML 26K
34: R20 Commitments and Contingencies HTML 28K
35: R21 Stockholders' Equity HTML 82K
36: R22 Reclassifications out of Accumulated Other HTML 62K
Comprehensive Income (Aoci)
37: R23 Interim Financial Data by Segment HTML 46K
38: R24 New Accounting Pronouncements (Tables) HTML 30K
39: R25 Revenue (Tables) HTML 71K
40: R26 Earnings per Share (Eps) (Tables) HTML 42K
41: R27 Other (Income)/Expense, Net (Tables) HTML 35K
42: R28 Corporate Investments and Funds Held For Clients HTML 171K
(Tables)
43: R29 Leases (Tables) HTML 52K
44: R30 Goodwill and Intangibles Assets, net (Tables) HTML 58K
45: R31 Short-term Financing (Tables) HTML 36K
46: R32 Debt (Tables) HTML 36K
47: R33 Employee Benefit Plans (Tables) HTML 85K
48: R34 Stockholders' Equity (Tables) HTML 81K
49: R35 Reclassifications out of Accumulated Other HTML 62K
Comprehensive Income (Aoci) (Tables)
50: R36 Interim Financial Data by Segment (Tables) HTML 42K
51: R37 Revenue - Disaggregation of Revenue (Details) HTML 60K
52: R38 Revenue - Contract Liability (Details) HTML 31K
53: R39 Earnings per Share (Eps) (Details) HTML 55K
54: R40 Other (Income)/Expense, Net (Details) HTML 36K
55: R41 Other Income, Net - Narrative (Details) HTML 24K
56: R42 Corporate Investments and Funds Held For Clients HTML 82K
(Corporate Investments And Funds Held For Clients)
(Details)
57: R43 Corporate Investments and Funds Held For Clients HTML 70K
(Available-For-Sale Securities That Have Been In
An Unrealized Loss Position) (Details)
58: R44 Corporate Investments and Funds Held For Clients HTML 69K
(Narrative) (Details)
59: R45 Corporate Investments and Funds Held For Clients HTML 33K
(Classification Of Corporate Investments On The
Consolidated Balance Sheets) (Details)
60: R46 Corporate Investments and Funds Held For Clients HTML 37K
(Schedule Of Investment Of Funds Held For Clients)
(Details)
61: R47 Corporate Investments and Funds Held For Clients HTML 36K
(Expected Maturities Of Available-For-Sale
Securities) (Details)
62: R48 Leases - Narrative (Details) HTML 26K
63: R49 Leases - Lease Cost (Details) HTML 31K
64: R50 Leases - Right of Use Assets and Operating Lease HTML 32K
Liabilities (Details)
65: R51 Leases - Operating Lease Maturities (Details) HTML 41K
66: R52 Goodwill and Intangibles Assets, net - Changes In HTML 36K
Goodwill (Details)
67: R53 Goodwill and Intangibles Assets, net - Components HTML 37K
Of Finite-Lived Intangible Assets (Details)
68: R54 Goodwill and Intangibles Assets, net - Narrative HTML 34K
(Details)
69: R55 Goodwill and Intangibles Assets, net - Schedule Of HTML 36K
Finite-Lived Intangible Assets, Future
Amortization Expense (Details)
70: R56 Short-term Financing (Details) HTML 64K
71: R57 Debt (Details) HTML 59K
72: R58 Employee Benefit Plans (Narrative) (Details) HTML 49K
73: R59 Employee Benefit Plans (Components Of Stock-Based HTML 94K
Compensation Expense) (Details)
74: R60 Employee Benefit Plans (Components Of Net Pension HTML 41K
Expense) (Details)
75: R61 Income Taxes (Details) HTML 24K
76: R62 Commitments and Contingencies (Details) HTML 24K
77: R63 Stockholders' Equity (Details) HTML 85K
78: R64 Reclassifications out of Accumulated Other HTML 57K
Comprehensive Income (Aoci) (Details)
79: R65 Interim Financial Data by Segment (Narrative) HTML 24K
(Details)
80: R66 Interim Financial Data by Segment (Financial Data HTML 40K
By Strategic Business Unit Segment) (Details)
82: XML IDEA XML File -- Filing Summary XML 150K
14: XML XBRL Instance -- adp-20200930_htm XML 2.31M
81: EXCEL IDEA Workbook of Financial Reports XLSX 90K
3: EX-101.CAL XBRL Calculations -- adp-20200930_cal XML 251K
4: EX-101.DEF XBRL Definitions -- adp-20200930_def XML 415K
5: EX-101.LAB XBRL Labels -- adp-20200930_lab XML 1.51M
6: EX-101.PRE XBRL Presentations -- adp-20200930_pre XML 816K
2: EX-101.SCH XBRL Schema -- adp-20200930 XSD 175K
83: JSON XBRL Instance as JSON Data -- MetaLinks 374± 537K
84: ZIP XBRL Zipped Folder -- 0000008670-20-000038-xbrl Zip 552K
Registrant's telephone number, including area code:(i973) i974-5000
__________________________
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.10 Par Value (voting)
iADP
iNASDAQ
Global Select Market
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 such filing requirements for the past 90 days. iYesý No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesý No o
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
Accelerated Filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Revenues,
other than interest on funds held for clients and PEO revenues
$
i2,269.6
$
i2,306.2
Interest
on funds held for clients
i106.5
i133.9
PEO
revenues (A)
i1,094.6
i1,055.6
TOTAL
REVENUES
i3,470.7
i3,495.7
EXPENSES:
Costs
of revenues:
Operating expenses
i1,762.1
i1,787.7
Systems
development and programming costs
i168.7
i168.2
Depreciation
and amortization
i103.5
i88.9
TOTAL
COSTS OF REVENUES
i2,034.3
i2,044.8
Selling,
general, and administrative expenses
i681.0
i726.5
Interest
expense
i15.1
i39.9
TOTAL
EXPENSES
i2,730.4
i2,811.2
Other
(income)/expense, net
(i24.9)
(i54.6)
EARNINGS
BEFORE INCOME TAXES
i765.2
i739.1
Provision
for income taxes
i163.1
i156.7
NET
EARNINGS
$
i602.1
$
i582.4
BASIC
EARNINGS PER SHARE
$
i1.40
$
i1.35
DILUTED
EARNINGS PER SHARE
$
i1.40
$
i1.34
Basic
weighted average shares outstanding
i428.6
i432.7
Diluted
weighted average shares outstanding
i430.0
i435.4
(A)
Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $i10,925.8 million and $i10,510.6
million for the three months ended September 30, 2020 and 2019, respectively.
See notes to the Consolidated Financial Statements.
(A)
As of June 30, 2020, $i13.6 million of long-term marketable securities have been pledged as collateral under the Company's reverse repurchase agreements (see Note 9).
See notes to the Consolidated Financial Statements.
(Tabular dollars in millions, except per share amounts or where otherwise
stated)
(Unaudited)
Note 1. iBasis of Presentation
The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc., its subsidiaries
and variable interest entity (“ADP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Consolidated Financial Statements and footnotes thereto are unaudited. In the opinion of the Company’s management, the Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of the Company’s interim financial results.
The Company has a grantor trust, which holds the majority of the funds provided by its clients pending remittance to employees of those clients, tax authorities, and
other payees. The Company is the sole beneficial owner of the trust. The trust meets the criteria in Accounting Standards Codification (“ASC”) 810, “Consolidation” to be characterized as a variable interest entity (“VIE”). The Company has determined that it has a controlling financial interest in the trust because it has both (1) the power to direct the activities that most significantly impact the economic performance of the trust (including the power to make all investment decisions for the trust) and (2) the right to receive benefits that could potentially be significant to the trust (in the form of investment returns) and, therefore, consolidates the trust. Further information on these funds and the Company’s
obligations to remit to its clients’ employees, tax authorities, and other payees is provided in Note 6, “Corporate Investments and Funds Held for Clients.”
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, expenses, and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020
(“fiscal 2020”).
Note 2. iNew Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Effective July 1, 2020, the
Company adopted accounting standard update (“ASU”) 2018-13, “Fair Value Measurement.” The update modifies the disclosure requirements on fair value measurements. The adoption of ASU 2018-13 modified the disclosures in Note 6 but did not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
Effective July 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This update introduces the current expected credit loss (“CECL”) model, which requires an entity to measure credit losses based on expected losses rather than incurred losses for certain financial
instruments and financial assets, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
7
i
Recently
Issued Accounting Pronouncements
The following table summarizes recent ASU's issued by the Financial Accounting Standards Board (“FASB”) that could have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
Standard
Description
Effective Date
Effect on Financial Statements or Other Significant Matters
This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The amendments in ASU 2018-14 would need to be applied on a retrospective basis.
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
Note
3. iRevenue
Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic pillars: Human Capital Management (“HCM”), HR Outsourcing (“HRO”), and Global (“Global”) Solutions, with separate disaggregation for PEO zero-margin benefits pass-through revenues and client funds interest revenues. The
Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.
HCM provides a suite of product offerings that assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement. Global is generally consistent with the types of services provided within HCM but represents geographies outside of the United States and includes our multinational offerings. HCM and Global revenues are primarily attributable to fees for providing solutions for payroll, benefits, talent, retirement services and HR processing and fees charged to implement the Company's solutions for clients.
HRO provides a comprehensive human resources outsourcing
solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment insurance, among other human resources functions. This revenue is primarily driven by the PEO. Amounts collected from PEO worksite employers include payroll, fees for benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment taxes. The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company does not retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is primarily responsible for providing the service and has discretion in establishing wages. The fees collected from the worksite employers for benefits (i.e., PEO benefits pass-throughs), workers’ compensation
and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company acts as a principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for fulfilling the service and has discretion in establishing price. The Company has further disaggregated HRO to separate out its PEO zero-margin benefits pass-through revenues.
The Company recognizes client funds interest revenues on collected but not yet remitted
funds held for clients in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.
8
i
The following tables provide details of revenue by our strategic pillars with disaggregation for PEO zero-margin benefits pass-throughs and client funds interest, and include a reconciliation to the
Company’s reportable segments:
The timing of revenue recognition for HCM, HRO and Global Solutions is consistent with the invoicing of clients, as invoicing occurs in the period the services are provided. Therefore, the Company does not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.
i
Changes
in deferred revenue related to set up fees for the three months ended September 30, 2020 were as follows:
Options
to purchase i2.1 million and i0.7
million shares of common stock for the three months ended September 30, 2020 and 2019, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
Realized
(gains) / losses on available-for-sale securities, net
(i0.3)
(i2.3)
Impairment
of assets
i2.8
i—
Gain
on sale of assets
(i0.2)
(i1.9)
Non-service
components of pension income, net (see Note 11)
(i13.4)
(i18.1)
Other
(income)/expense, net
$
(i24.9)
$
(i54.6)
/
In
fiscal 2021, the Company recorded impairment charges of$i2.8 million as a result of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.
10
Note
6. iCorporate Investments and Funds Held for Clients
Money market securities, cash and other cash equivalents
$
i10,361.7
$
i—
$
i—
$
i10,361.7
Available-for-sale
securities:
Corporate bonds
i9,013.1
i458.0
(i0.4)
i9,470.7
Asset-backed
securities
i2,942.7
i98.4
(i0.2)
i3,040.9
U.S.
Treasury securities
i3,581.3
i108.8
i—
i3,690.1
U.S.
government agency securities
i1,341.8
i34.5
(i0.8)
i1,375.5
Canadian
government obligations and Canadian government agency obligations
i1,037.0
i22.6
i—
i1,059.6
Commercial
mortgage-backed securities
i810.1
i54.5
i—
i864.6
Canadian
provincial bonds
i652.7
i34.8
i—
i687.5
Other
securities
i974.5
i41.7
i—
i1,016.2
Total
available-for-sale securities
i20,353.2
i853.3
(i1.4)
i21,205.1
Total
corporate investments and funds held for clients
$
i30,714.9
$
i853.3
$
(i1.4)
$
i31,566.8
(A) Included
within available-for-sale securities are corporate investments with fair values of $i3.4 million and funds held for clients with fair values of $i21,201.7 million. All
available-for-sale securities were included in Level 2 of the fair value hierarchy.
Money market securities, cash and other cash equivalents
$
i7,053.6
$
i—
$
i—
$
i7,053.6
Available-for-sale
securities:
Corporate bonds
i9,188.7
i473.4
i—
i9,662.1
Asset-backed
securities
i3,274.6
i96.0
(i0.5)
i3,370.1
U.S.
Treasury securities
i3,580.6
i120.8
i—
i3,701.4
U.S.
government agency securities
i1,128.2
i35.6
i—
i1,163.8
Canadian
government obligations and Canadian government agency obligations
i1,018.7
i23.1
i—
i1,041.8
Commercial
mortgage-backed securities
i814.3
i53.9
i—
i868.2
Canadian
provincial bonds
i676.6
i33.6
i—
i710.2
Other
securities
i1,018.1
i41.1
(i0.2)
i1,059.0
Total
available-for-sale securities
i20,699.8
i877.5
(i0.7)
i21,576.6
Total
corporate investments and funds held for clients
$
i27,753.4
$
i877.5
$
(i0.7)
$
i28,630.2
/
(B)
Included within available-for-sale securities are corporate investments with fair values of $i13.6 million and funds held for clients with fair values of $i21,563.0 million. All
available-for-sale securities were included in Level 2 of the fair value hierarchy.
11
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” in the Company's Annual Report on Form 10-K for fiscal 2020. The Company concurred with and did not adjust the prices obtained from the independent pricing service. The
Company had iino/ available-for-sale securities
included in Level 1 or Level 3 at September 30, 2020.
i
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 September 30, 2020, are as follows:
Securities in Unrealized Loss Position Less Than 12 Months
Securities in Unrealized Loss Position Greater Than 12 Months
Total
Gross Unrealized Losses
Fair Market Value
Gross Unrealized Losses
Fair Market Value
Gross Unrealized Losses
Fair Market
Value
Corporate bonds
$
(i0.4)
$
i151.5
$
i—
$
i—
$
(i0.4)
$
i151.5
Asset-backed
securities
(i0.2)
i77.5
i—
i—
(i0.2)
i77.5
U.S.
Treasury securities
i—
i—
i—
i—
i—
i—
U.S.
government agency securities
(i0.8)
i320.0
i—
i—
(i0.8)
i320.0
Canadian
government obligations and Canadian government agency obligations
i—
i—
i—
i—
i—
i—
Commercial
mortgage-backed securities
i—
i—
i—
i1.5
i—
i1.5
Canadian
provincial bonds
i—
i—
i—
i—
i—
i—
Other
securities
i—
i12.9
i—
i—
i—
i12.9
$
(i1.4)
$
i561.9
$
i—
$
i1.5
$
(i1.4)
$
i563.4
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, 2020, are as follows:
Securities in Unrealized Loss Position Less Than 12 Months
Securities in Unrealized Loss Position Greater Than 12 Months
Total
Gross Unrealized Losses
Fair Market Value
Gross Unrealized Losses
Fair Market Value
Gross Unrealized Losses
Fair Market
Value
Corporate bonds
$
i—
$
i—
$
i—
$
i—
$
i—
$
i—
Asset-backed
securities
(i0.5)
i43.9
i—
i—
(i0.5)
i43.9
U.S.
Treasury securities
i—
i2.0
i—
i—
i—
i2.0
U.S.
government agency securities
i—
i—
i—
i—
i—
i—
Canadian
government obligations and Canadian government agency obligations
i—
i—
i—
i—
i—
i—
Commercial
mortgage-backed securities
i—
i—
i—
i1.5
i—
i1.5
Canadian
provincial bonds
i—
i—
i—
i—
i—
i—
Other
securities
(i0.2)
i17.1
i—
i—
(i0.2)
i17.1
$
(i0.7)
$
i63.0
$
i—
$
i1.5
$
(i0.7)
$
i64.5
/
At
September 30, 2020, Corporate bonds include investment-grade debt securities with a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from iOctober 2020 through iSeptember 2030.
At
September 30, 2020, asset-backed securities include AAA-rated senior tranches of securities with predominantly prime collateral of fixed-rate auto loan, credit card, equipment lease, and rate reduction receivables with fair values of $i1,520.8 million, $i1,100.4
million, $i321.9 million, and $i97.1 million, respectively. These securities are collateralized by the cash flows
12
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 September 30, 2020.
At September 30, 2020, U.S. government agency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $i614.7
million and $i590.8 million, respectively. U.S. government agency securities represent senior, unsecured, non-callable debt that primarily carry ratings of Aaa by Moody's, and AA+ by Standard & Poor's, with maturities ranging from iOctober
2020 through iDecember 2029.
At September 30, 2020, other securities and their fair value primarily include municipal bonds of $i576.7 million, AA-rated United
Kingdom Gilt securities of $i197.3 million, and AAA-rated and AA-rated sovereign bonds of $i77.2 million.
i
Classification
of corporate investments on the Consolidated Balance Sheets is as follows:
(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.
i
Funds
held for clients have been invested in the following categories:
Restricted
cash and cash equivalents held to satisfy client funds obligations
$
i8,748.6
$
i5,145.1
Restricted
short-term marketable securities held to satisfy client funds obligations
i5,614.4
i5,541.2
Restricted
long-term marketable securities held to satisfy client funds obligations
i15,587.3
i16,021.8
Total
funds held for clients
$
i29,950.3
$
i26,708.1
/
Client
funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax, and other payee payment obligations and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within ione year of the balance sheet date. The Company
has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling $i29,098.4 million and $i25,831.6 million at September 30,
2020 and June 30, 2020, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purpose of satisfying the client funds obligations. Of the Company’s funds held for clients at September 30, 2020 and June 30, 2020, $i26,805.6
million and $i23,740.0 million, respectively, are held in the grantor trust. The liabilities held within the trust are intercompany liabilities to other Company subsidiaries and are eliminated in consolidation.
The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the
proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash and cash equivalents related to client funds investments with original maturities of ininety days or less, within the beginning and ending balances of cash, cash equivalents, restricted cash, and restricted cash equivalents. These amounts have been reconciled to the Consolidated Balance Sheets on the Statements of Consolidated Cash Flows. The
Company has reported the cash flows related to the cash received from and paid on behalf of clients on a net basis within net increase / (decrease) in client funds obligations in the financing activities section of the Statements of Consolidated Cash Flows.
13
Approximately i79% of the available-for-sale securities
held a AAA-rating or AA-rating at September 30, 2020, as rated by Moody's, Standard & Poor's, DBRS for Canadian dollar-denominated securities, and Fitch for asset-backed and commercial mortgage-backed securities. All available-for-sale securities were rated as investment grade at September 30, 2020.
i
Expected maturities of available-for-sale securities at September 30,
2020 are as follows:
One year or less
$
i5,617.8
One year to two years
i4,283.0
Two
years to three years
i3,817.6
Three years to four years
i2,932.7
After
four years
i4,554.0
Total available-for-sale securities
$
i21,205.1
/
Note
7. iLeases
The Company records leases on the consolidated balance sheets as operating lease right-of-use (“ROU”) assets, records the current portion of operating lease liabilities within accrued expenses and other current liabilities and, separately, records long-term operating lease liabilities.
The
Company has entered into operating lease agreements for facilities and equipment. The Company's leases have remaining lease terms of up to approximately ieleven years. Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The lease liabilities are measured by discounting future lease payments at the Company’s collateralized incremental
borrowing rate for financing instruments of a similar term, unless the implicit rate is readily determinable. ROU assets also include adjustments related to prepaid or deferred lease payments and lease incentives. The difference between total ROU assets and total lease liabilities are primarily attributable to pre-payments of our obligations and the recognition of various lease incentives.
i
The components of operating lease expense were as follows:
Current operating lease liabilities were approximately $i94.7
million and $i95.5 million as of September 30, 2020 and June 30, 2020, respectively, and are included within Accrued expenses and other current liabilities on the Consolidated Balance Sheets.
Note 8. iGoodwill
and Intangible Assets, net
i
Changes in goodwill for the three months ended September 30, 2020 are as follows:
Other
intangibles consist primarily of purchased rights, trademarks and trade names (acquired directly or through acquisitions). All intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is i6 years (i6
years for software and software licenses, i5 years for customer contracts and lists, and i3 years for other intangibles). Amortization of intangible assets was
$i84.2 million and $i69.4 million for the three months ended September 30, 2020 and 2019,
respectively.
15
i
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
The Company has a $i3.2
billion, i364-day credit agreement that matures in June 2021 with a ione year term-out option. The Company also has a $i2.75
billion five year credit facility that matures in June 2024 that contains an accordion feature under which the aggregate commitment can be increased by $i500 million, subject to the availability of additional commitments. In addition, the Company has a five year $i3.75
billion credit facility maturing in June 2023 that also contains an accordion feature under which the aggregate commitment can be increased by $i500 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 ino borrowings through September 30,
2020 under the credit agreements.
The Company's U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. This commercial paper program provides for the issuance of up to $i9.7
billion in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s and Prime-1 (“P-1”) by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from iovernight to up to 364 days. At September 30, 2020 and June 30, 2020, the Company had ino
commercial paper borrowing outstanding. iDetails of the borrowings under the commercial paper program are as follows:
The Company’s U.S., Canadian and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from iovernight to up to five business
days. At September 30, 2020, there were ino outstanding obligations related to reverse repurchase agreements. At June 30, 2020, the Company had $i13.6
million of outstanding obligations related to the reverse repurchase agreements. iDetails of the reverse repurchase agreements are as follows:
The Company has two series of fixed-rate notes with i10-year, staggered maturities for an aggregate principal
amount of $i2.0 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, semi-annually.
During the three months ended September 30, 2020, the Company issued $i1.0
billion of senior notes due in 2030 bearing a fixed interest rate of i1.250%. The Company also redeemed $i1.0 billion of
senior notes bearing a fixed interest rate of i2.250%. In connection with the senior notes issuance, the Company also terminated several derivative contracts in place to hedge exposure in changes in benchmark interest rates for the senior notes issued with an aggregate notional amount totaling $i1.0
billion (of which $i400.0 million were entered into during fiscal year 2020 and $i600.0 million were entered into on the day of issuance). Since these derivative contracts
were classified as cash flow hedges, the unamortized loss of $i43.6 million was deferred in accumulated other comprehensive income and will be amortized to earnings over the life of the Notes as the interest payments are made.
i
The
principal amounts and associated effective interest rates of the Notes and other debt as of September 30, 2020 and June 30, 2020, are as follows:
Less:
unamortized discount and debt issuance costs
(i12.5)
(i3.8)
Total
long-term debt
$
i1,993.9
$
i1,002.8
/
(a)
- Current portion of long-term debt as of September 30, 2020 is included within Accrued expenses and other current liabilities on the Consolidated Balance Sheets.
The effective interest rates for the Notes include the interest on the Notes and amortization of the discount and debt issuance costs.
As of September 30, 2020, the fair value of the Notes, based on Level 2 inputs, was $i2,115.0
million. For a description of the fair value hierarchy and the Company's fair value methodologies, including the use of an independent third-party service, see Note 1 “Summary of Significant Accounting Policies” in the Company's Annual Report on Form 10-K for fiscal 2020.
Note 11. Employee Benefit Plans
A. iStock-based
Compensation Plans. Stock-based compensation consists of the following:
•Stock Options. Stock options are granted to employees at exercise prices equal to the fair market value of the Company's common stock on the dates of grant. Stock options generally vest ratably over i4 years and have
a term of i10 years. Compensation expense is measured based on the fair value of the stock option on the grant date and recognized on a straight-line basis over the vesting period. Stock options are forfeited if the employee ceases to be employed by the Company prior to vesting. 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.
17
•Restricted Stock.
•Time-Based Restricted Stock and Time-Based Restricted Stock Units. Time-based restricted stock and time-based restricted stock units granted September 1, 2018 and after generally vest ratably over i3
years. Time-based restricted stock and time-based restricted stock units granted prior to September 1, 2018 are generally subject to a vesting period of i2 years. Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.
Time-based restricted stock cannot be transferred
during the vesting period. Compensation expense relating to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. Dividends are paid on shares awarded under the time-based restricted stock program.
Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock units is recorded over the vesting period and is initially based on the fair value of the award on the grant date and is subsequently remeasured at each reporting date during the vesting period based on the change in the ADP stock price. No dividend equivalents are paid on units awarded under the time-based restricted stock unit program.
•Performance-Based
Restricted Stock and Performance-Based Restricted Stock Units. Performance-based restricted stock and performance-based restricted stock units generally vest over a one to three-year performance period and a subsequent service period of up to i38 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 i0% to i150%
of the “target awards.” Awards are generally forfeited if the employee ceases to be employed by the Company prior to vesting.
Performance-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock is recognized over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of shares awarded during the performance period based on probable and actual performance against targets. After the performance period, if the performance targets are achieved, employees are eligible to receive dividends during the remaining vesting period on shares awarded under the performance-based restricted stock program.
Performance-based
restricted stock units cannot be transferred and are settled in either cash or stock, depending on the employee's home country. Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recognized over the vesting period initially based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded during the performance period based on probable and actual performance against targets. In addition, compensation expense is remeasured at each reporting period during the vesting period based on the change in the ADP stock price. Compensation expense relating to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded based on the probable and actual performance against targets. Dividend equivalents are paid on awards
under the performance-based restricted stock unit program.
•Employee Stock Purchase Plan.The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to i95% of the market value for the Company's common stock on the last day of the offering
period. This plan has been deemed non-compensatory and, therefore, no compensation expense has been recorded.
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company repurchased i1.7
million and i1.9 million shares in the three months ended September 30, 2020 and 2019, respectively. 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.
18
i
The
following table represents pre-tax stock-based compensation expense for the three months ended September 30, 2020 and 2019, respectively:
Settlement
charges and special termination benefits
i2.9
(i5.1)
Net
pension income
$
(i11.1)
$
(i2.7)
//
Note
12. iIncome Taxes
The effective tax rate for the three months ended September 30, 2020 and 2019 was i21.3%
and i21.2%, respectively. The increase in the effective tax rate is primarily due to a decrease in the excess tax benefit on stock-based compensation partially offset by favorable adjustments to prior year tax liabilities in the three months ended September 30, 2020.
Note 13. iCommitments
and Contingencies
In June 2018, a potential class action complaint was filed against the Company in the Circuit Court of Cook County, Illinois asserting that ADP violated the Illinois Biometric Privacy Act in connection with its collection, use and storage of biometric data of employees of its clients who are residents of Illinois. In addition, similar potential class action complaints have been filed in Illinois state courts against ADP and/or certain of its clients with respect to the collection, use and storage of biometric data of the employees of these clients. In June 2020, the Company reached a settlement of all outstanding claims against ADP for $i25.0 million,
subject to the court's preliminary approval. The Company does not expect that any of the remaining cases against ADP's clients will result in any material liabilities to the Company.
In May 2020, two potential class action complaints were filed against ADP, TotalSource and related defendants in the U.S. District Court, District of New Jersey. The complaints assert violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) in connection with the ADP TotalSource Retirement Savings Plan’s fiduciary administrative and investment decision-making. The complaints seek statutory and other unspecified monetary damages, injunctive relief and attorney’s fees. These claims are still in their earliest stages and the
Company is unable to estimate any reasonably possible loss, or range of loss, with respect to these matters. The Company intends to vigorously defend against these lawsuits.
The Company is subject to various claims, litigation, and regulatory compliance matters in the normal course of business. When a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its best estimate for the ultimate loss. Management currently believes that the resolution of these claims, litigation and regulatory compliance matters against us, individually or in the aggregate, will not have a material adverse impact on our consolidated results
of operations, financial condition or cash flows. These matters are subject to inherent uncertainties and management's view of these matters may change in the future.
20
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. iStockholders' Equity
i
Changes
in stockholders' equity by component are as follows:
(A)
Reclassification adjustments out of AOCI are included within Other (income)/expense, net, on the Statements of Consolidated Earnings.
(B) Reclassification adjustments out of AOCI are included in net pension income (see Note 11).
(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings.
/
22
Note 16.
iInterim Financial Data by Segment
Based upon similar economic and operational characteristics, the Company’s strategic business units have been aggregated into the following itwo
reportable segments: Employer Services and PEO Services. The primary components of the “Other” segment are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and interest expense. Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility. The Company made changes to the allocation methodology for certain corporate allocations, in both the current period and the prior period in the table below, which did not materially affect reportable segment results.
Item
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Tabular dollars are presented in millions, except per share amounts)
FORWARD-LOOKING STATEMENTS
This document and other written or oral statements made from time to time by Automatic Data Processing, Inc. and its subsidiaries (“ADP” or the “Company”) 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” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements or that could contribute to such difference include: ADP's success in obtaining and retaining clients, and selling additional services to clients; the pricing of products and services; the success of our new solutions; compliance with existing or new legislation or regulations; changes in, or interpretations of, existing legislation or regulations; overall market, political and economic conditions, including interest rate and foreign
currency trends; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs and profitability; security or cyber breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; changes in technology; availability of skilled technical associates; the impact of new acquisitions and divestitures; the adequacy, effectiveness and success of our business transformation initiatives; and the impact of and uncertainties related to major natural disasters or catastrophic events, including the coronavirus ("COVID-19") pandemic. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. These risks and uncertainties, along with the risk factors discussed under “Item 1A. - Risk Factors” in our Annual Report on Form 10-K for the fiscal
year ended June 30, 2020 (“fiscal 2020”), and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.
NON-GAAP FINANCIAL MEASURES
In addition to our U.S. GAAP results, we use adjusted results and other non-GAAP metrics to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables in the “Non-GAAP Financial Measures” section for a discussion of why ADP believes these measures are important and
for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.
We
are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions to employers around the world. The global COVID-19 pandemic has had a significant impact on the global business environment and on our clients, but our priority has been and continues to be the safety of our associates and the needs of our clients, and we have continued to provide HCM services, including process payroll and tax obligations, to our clients during this time. ADP's efforts have also been focused on providing information and tools to help clients understand and navigate the governmental relief that has been adopted globally. In addition, we released a Return to Workplace solution that assists our clients in bringing their employees back to work safely through a comprehensive set of tools designed to streamline the entire process.
Despite on-going headwinds related to COVID-19, we have seen
some improvements in our reported metrics. Our pays per control metric, which represents growth of the employee base for a large portion of our client base, showed a decline of 9% in the three months ended September 30, 2020 compared to a decline of 11% in the three months ended June 30, 2020. Employer Services New Business Bookings grew 2% for the three months ended September 30, 2020, as economic conditions began to stabilize and we saw our clients and prospects show a greater willingness to engage and invest in new HCM solutions. The PEO average number of Worksite Employees decreased 3% for the three months ended September 30, 2020. In addition, we continue to move forward with our digital and procurement transformation initiatives and delivered profit growth and margin
expansion for the three months ended September 30, 2020.
We continue to drive innovation by anticipating our clients' evolving needs as the world of work changes as we are always designing for people. We are leading the HCM industry with innovations like our next gen platforms and driving growth through our strategic, cloud-based HCM solutions. We further enable these solutions by supplementing them with organic, differentiated investments such as the ADP Marketplace and ADP Datacloud, and through our compliance expertise. The recognition we have received in the market for our next gen payroll platform and in winning this year's HR Executive 'Top HR Product' award reflect our commitment to innovation and strong execution by our associates.
We have a strong business model, a highly cash generative
business with low capital intensity, and offer a suite of products that provide critical HCM support to our clients. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our reinvestments, our longer term strategy, and our commitments to shareholder friendly actions. We are committed to building upon our past successes by investing in our business through enhancements in research and development and by driving meaningful transformation in the way we operate. Our financial condition remains solid atSeptember 30, 2020and we remain well positioned to support our associates and our clients.
25
RESULTS
AND ANALYSIS OF CONSOLIDATED OPERATIONS
Total Revenues
For the three months ended September 30:
Growth:
â
1%
Organic
constant currency:
â
1%
Revenues for the three months ended September 30, 2020 decreased due to an impact from lower New Business Bookings during the fourth quarter of fiscal 2020, a decrease in our pays per control and a decrease in our interest earned on funds held for clients discussed below. These decreases were partially offset by strong retention. Refer to “Analysis of Reportable Segments” for additional discussion of the changes in revenue for both of our reportable segments, Employer Services and Professional Employer Organization (“PEO”) Services, respectively.
Total
revenues for the three months ended September 30, 2020 include interest on funds held for clients of $106.5 million, as compared to $133.9 million for the three months ended September 30, 2019. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in our average interest rate earned to 1.9% for the three months ended September 30, 2020, as compared to 2.3% for the three months ended September 30, 2019, coupled with a decrease in our average client funds balance of 7.2% to $22.0 billion for the three months ended September 30,
2020, as compared to the three months ended September 30, 2019.
Operating
expenses decreased due to reduced costs from certain cost and headcount actions as a result of our broad-based transformation initiatives, including digital and procurement transformation initiatives, and excess capacity headcount actions. Additionally, operating expenses decreased due to reduced travel and entertainment expenses, decreased pension costs as a result of eliminated U.S. pension service costs with the July 1, 2020 cessation of U.S. participants accruing any future service benefits, and a favorable change in our estimated losses related to ADP Indemnity in the three months ended September 30, 2020. These decreases were partially offset by an increase in our PEO Services zero-margin benefits pass-through costs to $741.0 million from
$699.1 million for the three months ended September 30, 2020 and 2019, respectively.
26
Systems development and programming costs were flat for the three months ended September 30, 2020 due to increased investments and costs to develop, support, and maintain our products, offset by capitalization of costs related to our strategic projects, including our next gen platforms. Depreciation and amortization expense increased due to the amortization of our acquisitions of intangibles and internally developed software.
Selling,
general and administrative expenses decreased for the three months ended September 30, 2020 due to decreased selling and marketing expenses and reduced facilities costs and travel and entertainment expenses. Additionally, selling, general and administrative expenses decreased due to reduced costs from certain cost and headcount actions as a result of our broad-based transformation initiatives, including procurement transformation initiatives, and excess capacity headcount actions.
Interest expense decreased for the three months ended September 30, 2020 due to a decrease in average interest rates for commercial paper borrowings to 0.1% for the three months ended September 30, 2020, as compared to 2.3% for the three months ended September 30,
2019 coupled with a decrease in average daily borrowings under our commercial paper program to $2.4 billion for the three months ended September 30, 2020, as compared to $4.0 billion for the three months ended September 30, 2019.
Realized
(gains) / losses on available-for-sale securities, net
(0.3)
(2.3)
(2.0)
Impairment of assets
2.8
—
(2.8)
Gain
on sale of assets
(0.2)
(1.9)
(1.7)
Non-service components of pension income, net
(13.4)
(18.1)
(4.7)
Other
(income)/expense, net
$
(24.9)
$
(54.6)
$
(29.7)
Other (income)/expense, net, decreased $29.7 million for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.
The decrease is primarily due to a decrease in interest income on corporate funds due to lower interest rates earned, a decrease in non-service components of pension income, net, and impairment charges of$2.8 million recorded in the three months ended September 30, 2020 as a result of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.
Earnings Before Income Taxes
For the three months ended September 30:
Growth:
á
4%
á
90bps
Earnings
before income taxes increased for the three months ended September 30, 2020 due to the decreases in expenses discussed above.
27
Margin increased for the three months ended September 30, 2020 as a result of reduced costs from certain cost and headcount actions as a result of our broad-based transformation initiatives, including digital and procurement transformation initiatives, and excess capacity headcount actions. In addition, our margin improvement was aided by decreased interest expense, decreased selling and marketing expenses, reduced facilities costs and travel and entertainment
expenses, decreased pension costs and a change in our estimated losses related to ADP Indemnity. These were partially offset by incremental pressure from growth in our zero-margin benefits pass-throughs and an increase in amortization expense.
Adjusted Earnings before certain Interest and Taxes ("Adjusted EBIT")
For the three months ended September 30:
Growth:
á
5%
á
120bps
Adjusted
EBIT and Adjusted EBIT margin exclude certain interest amounts, net charges related to our broad-based transformation initiatives and the impact of the net severance charges related to excess capacity as applicable in the respective periods.
Provision for Income Taxes
The effective tax rate for the three months ended September 30, 2020 and 2019 was 21.3% and 21.2%, respectively. The increase in the effective tax rate is primarily due to a decrease in the excess tax benefit on stock-based compensation partially offset by favorable adjustments to prior year tax liabilities in the three months ended September 30, 2020.
Adjusted
Provision for Income Taxes
The adjusted effective tax rate for the three months ended September 30, 2020 and 2019 was 21.3% and 21.2%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.
28
Net Earnings and Diluted EPS
For the three months ended September 30:
Growth:
á
3%
á
4%
For
the three months ended September 30, 2020, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.
For the three months ended September 30, 2020, diluted EPS increased as a result of an increase in net earnings and the impact of fewer shares outstanding resulting from the repurchase of approximately 1.7 million shares during the three months ended September 30, 2020 and 1.9 million shares for the three months ended September 30, 2019, partially offset by the issuances of shares under our employee benefit plans.
Adjusted
Net Earnings and Adjusted Diluted EPS
For the three months ended September 30:
Growth:
á
4%
á
5%
For
the three months ended September 30, 2020, adjusted net earnings reflect the changes described above in our adjusted EBIT and our adjusted effective tax rate.
For the three months ended September 30, 2020, adjusted diluted EPS reflects the changes described above in our adjusted net earnings and shares outstanding.
Revenues decreased for the three months ended September 30, 2020 due to an impact from lower New Business Bookings during the fourth quarter of fiscal 2020, a decrease in our pays per control of 9% and a decrease in interest earned on funds held for clients. These decreases were partially offset by strong retention.
Our pays per control metric measures the number of employees on our clients' payrolls as measured on a same-store-sales basis utilizing a representative subset of payrolls ranging from small to large businesses that are reflective of a broad range of U.S. geographic regions.
Earnings
before Income Taxes
Employer Services' earnings before income taxes increased for the three months ended September 30, 2020 due to decreases in expenses. The decreases in expenses were due to reduced costs from certain cost and headcount actions as a result of our broad-based transformation initiatives, including digital and procurement transformation initiatives, and excess capacity headcount actions. Additionally, decreases in expenses were due to a decrease in selling and marketing expenses and reduced facilities costs and travel and entertainment expenses. These decreases were partially offset by an increase in amortization expense.
30
For
the three months ended September 30, respectively:
Growth:
á
120bps
Employer Services' margin increased for the three months ended September 30, 2020
as a result of reduced costs from certain cost and headcount actions as a result of our broad-based transformation initiatives, including digital and procurement initiatives, and excess capacity headcount actions. In addition, our margin improvement was aided by decreased selling and marketing expenses and reduced travel and entertainment expenses. These were partially offset by an increase in amortization expense.
PEO Services' revenues increased 4% for
the three months ended September 30, 2020, due to an increase in zero-margin benefits pass-throughs partially offset by a 3% decrease in the average number of Worksite Employees for the three months ended September 30, 2020. Additionally, PEO Services' revenues, excluding zero-margin benefits pass-through costs, decreased by 1% for the three months ended September 30, 2020.
Earnings before Income Taxes
PEO Services' earnings before income taxes increased 7% for the three months ended September 30, 2020 due to
a change in our estimated losses related to ADP Indemnity and a decrease in selling expenses in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.
31
For the three months ended September 30, respectively:
Growth:
á
40bps
PEO
Services' margin increased for the three months endedSeptember 30, 2020, due to a change in our estimated losses related to ADP Indemnity and a decrease in selling expenses in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.
ADP Indemnity provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence. PEO Services has secured a workers’ compensation and employer’s liability insurance policy that has a $1 million per occurrence retention and, in fiscal years 2012 and prior, aggregate stop loss insurance that covers
any aggregate losses within the $1 million retention that collectively exceed a certain level, from an admitted and licensed insurance company of AIG. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment. ADP Indemnity recorded a pre-tax benefit of approximately $10.4 millionfor the three months ended September 30, 2020, compared to approximately $3.4 million for the three months ended September 30, 2019, which were primarily a result of changes in our estimated actuarial losses. Beginning in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited, 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. For the three months ended September 30, 2020, ADP Indemnity paid a premium of $240 million to enter into a reinsurance arrangement with Chubb Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal 2021 policy year on terms substantially similar to the fiscal 2020 reinsurance policy.
Other
The primary components of “Other” are certain corporate overhead charges and expenses that have not been allocated to
the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and other interest expense.
32
Non-GAAP Financial Measures
In addition to our U.S. 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
Adjusted EBIT
Net earnings
Adjusted provision for income taxes
Provision for income taxes
Adjusted net earnings
Net earnings
Adjusted diluted earnings per share
Diluted earnings per share
Adjusted
effective tax rate
Effective tax rate
Organic constant currency
Revenues
We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations and against prior period, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a
manner similar to the method used by management and improves their ability to understand and assess our operating performance. The nature of these exclusions is for specific items that are not fundamental to our underlying business operations. Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.
Income tax (benefit)/ provision for transformation initiatives (d)
(0.2)
0.2
Excess
capacity severance charges (c)
2.4
—
Income tax benefit for excess capacity severance charges (d)
(0.6)
—
Adjusted
net earnings
$
604.5
$
582.0
4
%
Diluted
EPS
$
1.40
$
1.34
4
%
Adjustments:
Transformation
initiatives (b) (d)
—
—
Excess capacity severance charges (c) (d)
—
—
Adjusted
diluted EPS
$
1.41
$
1.34
5
%
(a) We include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds
extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”
(b) In the three months ended September 30, 2020, transformation initiatives include charges of $2.8 million related to impairment charges as a result of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale and net reversals of charges related to transformation initiatives of $2.0 million. Unlike certain other severance charges in prior periods that are not included as an adjustment
to get to adjusted results, these specific charges relate to actions that are part of our broad-based, company-wide transformation initiatives.
(c) Represents net severance cost related to excess capacity. Unlike certain other severance charges in prior periods that are not included as an adjustment to get to adjusted results, these specific charges relate to actions that are part of our broad-based, company-wide initiatives to address excess capacity across our business and functions.
(d) The income tax (benefit)/ provision was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.
34
(e)
The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.
The following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction. The impact of foreign currency is determined by calculating the current year result using foreign exchange rates consistent with the prior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, cash and cash equivalents were $1.6 billion, which were primarily invested in time deposits and money market funds.
For corporate
liquidity, we expect existing cash, cash equivalents, short-term marketable securities, cash flow from operations together with our $9.7 billion of committed credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, and capital expenditures for the foreseeable future. Our financial condition remains solid at September 30, 2020 and we have sufficient liquidity as noted above; however, given the continuing uncertainty in the rapidly changing market and economic conditions related to the COVID-19 pandemic, we will continue to evaluate the nature and extent of the impact to our financial condition and
liquidity.
For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements, together with our $9.7 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations. Please see “Quantitative and Qualitative Disclosures about Market Risk” for a further discussion of the risks, including with respect to the COVID-19 pandemic, related to our client funds extended investment strategy. See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper.
35
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 three months ended September 30, 2020 and 2019, respectively, are summarized as follows:
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
37.9
(33.1)
71.0
Net
change in cash, cash equivalents, restricted cash, and restricted cash equivalents
$
3,308.1
$
(4,524.0)
$
7,832.1
Net cash flows provided by operating activities for the three months ended September 30, 2020 and September 30, 2019 include cash payments for reinsurance agreements of $240.0 million and $215.0 million, respectively, which represent the policy premium for the entire fiscal year.
The increase in operating cash provided is primarily due to growth in our business supplemented by net favorable change in the components of working capital as compared to the three months ended September 30, 2019.
Net cash flows from investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $140.1 million, lower payments related to acquisitions of intangibles and payments related to capital expenditures partially offset by lower proceeds from the sale of assets in the three months ended September 30, 2020.
Net cash flows from financing activities changed due to a net increase in the
cash flow from client funds obligations of $11,266.6 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, proceeds from debt issuance, and less cash paid for share repurchases. These were partially offset by a decrease of net proceeds of commercial paper, payments of debt, a net repayment of reverse repurchase agreements, more cash returned to shareholders via dividends, and settlement of cash flow hedges in the three months ended September 30, 2020.
We purchased approximately 1.7 million shares of our common stock at an average price per share of $136.55 during the three months ended
September 30, 2020, as compared to purchases of 1.9 million shares at an average price per share of $164.80 during the three months ended September 30, 2019. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.
Capital Resources and Client Funds Obligations
We have
$2.0 billion of senior unsecured notes with maturity dates in 2025 and 2030. We may from time to time revisit the long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all. See Note 10 of our Consolidated Financial Statements for a description of our long-term financing.
Our U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. This commercial paper program provides for the issuance of up to $9.7
billion in aggregate maturity value. Our commercial paper program is rated A-1+ by Standard & Poor’s and Prime-1 (“P-1”) by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At September 30, 2020 and June 30, 2020, the Company had no commercial paper borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:
Our U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis
through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days. We have successfully borrowed through the use of reverse repurchase agreements on an as-needed basis to meet short-term funding requirements related to client funds obligations. At September 30, 2020, there were no outstanding obligations related to reverse repurchase agreements. At June 30, 2020, the Company had $13.6 million of outstanding obligations related to the reverse repurchase agreements. Details of the reverse repurchase agreements are as follows:
We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $3.2 billion, 364-day credit agreement that matures in June 2021 with a one year term-out option. In addition, we have a five-year $2.75 billion credit facility and a five-year $3.75 billion credit facility maturing in June 2024 and June 2023, respectively, each with an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments.
The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. We had no borrowings through September 30, 2020 under the credit facilities. We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the $9.7 billion available to us under the revolving credit agreements. See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including credit facilities.
Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations,
collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, equipment lease, and rate reduction receivables, secured predominantly by prime collateral. All collateral on asset-backed securities is performing as expected. In addition, we own senior debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations. See Note 6 of
our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.
Capital expenditures for the three months ended September 30, 2020 were $45.2 million, as compared to $52.2 million for the three months ended September 30, 2019. We expect capital expenditures in fiscal 2021 to be between $175 million and $200 million, as compared to $168.3 million in fiscal 2020.
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 client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities or client employees).
37
Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities. These assets are available for our regular quarterly dividends, share repurchases, capital expenditures and/or acquisitions, as well as other corporate operating purposes. All of our short-term fixed-income securities are classified as available-for-sale securities.
Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those
objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Client funds assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents.
We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). As part of our client funds investment strategy, we use the daily collection of
funds from our clients to satisfy other unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities in order to reduce the size of the funds held for clients to correspond to client funds obligations. We minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by impounding, in virtually all instances, the client’s funds in advance of the timing of payment of such client’s obligation. As a result of this practice, we have consistently maintained the required level of client funds assets to satisfy all of our obligations.
There are inherent risks and uncertainties involving our investment
strategy relating to our client funds assets. Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our client funds obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our $9.7 billion commercial paper program (rated A-1+ by Standard and Poor’s and P-1 by Moody’s, the highest possible short-term credit ratings), and our ability to engage in reverse repurchase agreement transactions and available borrowings under
our $9.7 billion committed credit facilities. The reduced availability of financing during periods of economic turmoil, including the COVID-19 pandemic, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to meet the liquidity needs of our business. In addition to liquidity risk, our investments are subject to interest rate risk and credit risk, as discussed below.
We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating at time of purchase for corporate, Canadian government agency and Canadian provincial bonds is BBB, for asset-backed securities is AAA, and for municipal bonds is A. The maximum maturity at time of purchase for BBB-rated securities is 5 years, 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.
38
Details regarding our overall investment portfolio are as follows:
Net unrealized pre-tax gains on available-for-sale securities
$
851.9
$
876.8
Total available-for-sale securities at fair value
$
21,205.1
$
21,576.6
We
are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annualized interest rate earned on our entire portfolio decreased from 2.2% for the three months ended September 30, 2019 to 1.8% for the three months ended September 30, 2020. 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 $22 million impact to earnings before income taxes over the ensuing twelve-month period ending September 30, 2021. 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 $7 million impact to earnings before income taxes over the ensuing twelve-month period ending September 30, 2021.
We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk
by investing in investment-grade securities, primarily AAA-rated and AA- rated securities, as rated by Moody’s, Standard & Poor’s, DBRS for Canadian dollar denominated securities, and Fitch for asset-backed and commercial-mortgage-backed securities. Approximately 79% of our available-for-sale securities held a AAA-rating or AA-rating at September 30, 2020. In addition, we limit amounts that can be invested in any security other than U.S. government and government agency, Canadian government, and United Kingdom government securities.
We operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in foreign currency exchange rates that could impact our consolidated results of operations, financial position, or cash flows. We manage our exposure to these
market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We may use derivative financial instruments as risk management tools and not for trading purposes.
39
CRITICAL ACCOUNTING POLICIES
Our Consolidated 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, expenses, and other comprehensive income. We
continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. In addition, as the duration and severity of the COVID-19 pandemic are uncertain, certain of our estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. As events continue to evolve, our estimates may change materially in future periods. Refer to Note 2 of our Consolidated Financial Statements for changes to our accounting policies effective for the fiscal 2021.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2, New Accounting Pronouncements, of Notes to the Consolidated
Financial Statements for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures about Market Risk” under Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 4. Controls and Procedures
The
Company carried out an 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) of the Securities Exchange Act of 1934 (the “evaluation”). 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 Securities Exchange Act of 1934 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 September 30, 2020 in ensuring that (i) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 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.
There was no change in the Company's internal control over financial reporting that occurred during the three months ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART
II. OTHER INFORMATION
Except as noted below, all other items are either inapplicable or would result in negative responses and, therefore, have been omitted.
40
Item 1. Legal Proceedings
In the normal course of business, the Company is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, the Company
believes it has valid defenses with respect to the legal matters pending against it and the Company believes that the ultimate resolution of these matters will not have a material adverse impact on its financial condition, results of operations, or cash flows.
With respect to the disclosure of administrative or judicial proceedings arising under any Federal, State, or local provisions regulating the discharge of materials into the environment or that are primarily for the purpose of protecting the environment, the Company has determined that the following threshold is reasonably designed to result in disclosure of any such proceeding that is material to its business or financial condition: any proceeding when the potential monetary sanctions exceed
$1 million.
Item 1A. Risk Factors
There have been no material changes in our risk factors disclosed in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Total
Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of the Publicly Announced Common Stock Repurchase Plan (2)
Maximum Approximate Dollar Value of Shares that may yet be Purchased under the Common Stock Repurchase Plan (2)
Period
July 1 to 31, 2020
92,915
$
132.36
90,684
$
4,451,425,248
August
1 to 31, 2020
684,012
$
138.39
683,298
$
4,356,862,440
September
1 to 30, 2020
1,135,818
$
136.45
878,407
$
4,237,787,851
Total
1,912,745
1,652,389
(1) During
the three months ended September 30, 2020, pursuant to the terms of our restricted stock program, the Company purchased 260,356 shares at the then-market value of the shares to satisfy certain tax withholding requirements for employees upon the vesting of their restricted shares.
(2) The Company received the Board of Directors' approval to repurchase the shares of our common stock included in the table above as follows:
Date of Approval
November
2019
$5 billion
There is no expiration date for the common stock repurchase plan.
Certification by Kathleen A. Winters pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
42
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.