(A) As of September 30, 2024, $578.6 million of short-term marketable securities, $98.8 million of long-term marketable securities and $1.7 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements. As of June 30, 2024, $384.0 million of short-term marketable securities and $1.4 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements (see Note 9).
See notes to the Consolidated Financial Statements.
5
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Cash Flows
(In millions)
(Unaudited)
Three Months Ended
September 30,
2024
2023
Cash Flows from Operating Activities:
Net earnings
$
956.3
$
859.4
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Depreciation and amortization
138.6
141.5
Amortization of deferred contract costs
281.4
262.3
Deferred income taxes
42.7
26.8
Stock-based compensation expense
60.6
58.8
Bad Debt Expense
11.2
13.1
Net pension income
(4.9)
(5.8)
Net accretion of discounts and amortization of premiums on available-for-sale securities
(15.5)
(5.5)
Other
0.9
(10.4)
Changes in operating assets and liabilities:
(Increase)/Decrease in accounts receivable
115.4
(107.9)
Increase in deferred contract costs
(269.8)
(261.9)
Increase in other assets
(217.1)
(304.9)
Increase/(Decrease) in accounts payable
48.0
(30.4)
Decrease in accrued expenses and other liabilities
(323.4)
(308.6)
Net cash flows provided by operating activities
824.4
326.5
Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities
(2,771.7)
(710.2)
Proceeds from the sales and maturities of corporate and client funds marketable securities
1,266.8
632.0
Capital expenditures
(58.8)
(39.3)
Additions to intangibles
(80.9)
(87.0)
Acquisitions of businesses, net of cash acquired
—
(33.6)
Proceeds from sale of property, plant, and equipment and other assets
3.3
22.0
Other
(3.1)
—
Net cash flows used in investing activities
(1,644.4)
(216.1)
Cash Flows from Financing Activities:
Net decrease in client funds obligations
(10,870.5)
(1,374.9)
Net cash distributed from the Internal Revenue Service
(336.4)
—
Payments of debt
(0.3)
(0.2)
Proceeds from the issuance of debt
988.9
—
Settlement of cash flow hedges
(12.5)
—
Repurchases of common stock
(372.6)
(250.0)
Net proceeds from stock purchase plan and stock-based compensation plans
12.0
(36.6)
Dividends paid
(572.6)
(515.8)
Net proceeds related to reverse repurchase agreements
297.1
273.8
Net proceeds of commercial paper borrowings
4,375.4
—
Net cash flows used in financing activities
(6,491.5)
(1,903.7)
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
17.0
(16.3)
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents
(7,294.5)
(1,809.6)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period
10,086.0
8,771.5
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period
$
2,791.5
$
6,961.9
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents
$
2,104.9
$
1,441.4
Restricted cash and restricted cash equivalents included in funds held for clients (A)
686.6
5,520.5
Total cash, cash equivalents, restricted cash, and restricted cash equivalents
$
2,791.5
$
6,961.9
Supplemental disclosures of cash flow information:
Cash paid for interest
$
140.7
$
97.0
Cash paid for income taxes, net of income tax refunds
$
64.7
$
87.9
(A) See Note 6 for a reconciliation of restricted cash and restricted cash equivalents in funds held for clients on the Consolidated Balance Sheets.
See notes to the Consolidated Financial Statements.
6
Automatic Data Processing, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts or where otherwise stated)
(Unaudited)
Note 1. Basis 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, 2024 (“fiscal 2024”). Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's presentation.
Note 2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
None.
Recently Issued Accounting Pronouncements
Standard
Description
Effective Date
Effect on Financial Statements or Other Significant Matters
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures
This update enhances the transparency and decision usefulness of income tax disclosures to better assess how an entity’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows.
June 30, 2026 (Fiscal 2026)
The Company is assessing this guidance. The adoption will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, and cash flows.
This update improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and certain quantitative disclosures.
June 30, 2025 (Fiscal 2025)
The Company is assessing this guidance. The adoption will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, and cash flows.
Note 3. Revenue
Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three business pillars: Human Capital Management (“HCM”), HR Outsourcing (“HRO”), and Global Solutions (“Global”), with separate disaggregation for PEO zero-margin benefits pass-through revenues and client funds interest revenues. The Company believes
7
these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.
The following tables provide details of revenue by our business pillars, and include a reconciliation to the Company’s reportable segments:
The timing of revenue recognition for HCM, HRO and Global 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.
At September 30, 2024, corporate bonds include investment-grade debt securities with a wide variety of issuers, industries, and sectors, primarily carrying credit ratings of A and above, and have maturities ranging from October 2024 through September 2034.
At September 30, 2024, asset-backed securities include AAA-rated senior tranches of securities with predominantly prime collateral of fixed-rate auto loan, credit card, and equipment lease receivables with fair values of $759.5 million, $486.8 million, and $189.5 million, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All collateral on such asset-backed securities has performed as expected through September 30, 2024.
11
At September 30, 2024, U.S. government agency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $969.0 million and $482.2 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 October 2024 through August 2034.
At September 30, 2024, U.S. government agency commercial mortgage-backed securities of $487.9 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.
At September 30, 2024, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above with fair values of $543.2 million, AA-rated United Kingdom Gilt securities of $313.0 million, and AAA-rated supranational bonds of $218.3 million.
客戶資金義務代表公司向客戶支付薪資、稅收和其他支付義務的合同義務，並在公司從客戶處扣留資金時記錄在合併資產負債表上。客戶資金義務表示的是將在資產負債表日期前償還的負債。 一年 日至日，公司已將客戶資金義務報告爲合併資產負債表上的流動負債。 合併資產負債表總金額3000000028,720.9 百萬 and $39,503.9 美元。公司自2024年9月30日和2024年6月30日確認了客戶資金義務，並將持有的基金分類爲流動資產，因爲這些資金僅用於滿足客戶資金義務。在2024年9月30日和2024年6月30日，公司持有用於客戶的資金 $25,338.3 百萬美元和美元34,940.0 分別存放在授信人信託中的資產和負債分別爲 number million和 number million。信託中持有的負債是對其他公司子公司的公司內部負債，在合併中被消除。
Changes in goodwill for the three months ended September 30, 2024 are as follows:
Employer Services
PEO Services
Total
Balance at June 30, 2024
$
2,348.8
$
4.8
$
2,353.6
Currency translation adjustments
15.4
—
15.4
Balance at September 30, 2024
$
2,364.2
$
4.8
$
2,369.0
Components of intangible assets, net, are as follows:
September 30,
June 30,
2024
2024
Intangible assets:
Software and software licenses
$
3,874.3
$
3,803.7
Customer contracts and lists
1,192.9
1,181.6
Other intangibles
242.2
242.0
5,309.4
5,227.3
Less accumulated amortization:
Software and software licenses
(2,707.0)
(2,642.6)
Customer contracts and lists
(1,030.5)
(1,007.6)
Other intangibles
(241.6)
(241.1)
(3,979.1)
(3,891.3)
Intangible assets, net
$
1,330.3
$
1,336.0
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 5 years (6 years for software and software licenses, 3 years for customer contracts and lists, and 1 year for other intangibles). Amortization of intangible assets was $89.0 million and $95.7 million for the three months ended September 30, 2024 and 2023, respectively.
14
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
Amount
Nine months ending June 30, 2025
$
327.7
Twelve months ending June 30, 2026
$
265.5
Twelve months ending June 30, 2027
$
195.1
Twelve months ending June 30, 2028
$
152.2
Twelve months ending June 30, 2029
$
124.0
Twelve months ending June 30, 2030
$
86.0
Note 9. Short-term Financing
The Company has a $4.55 billion, 364-day credit agreement that matures in June 2025 with a one year term-out option. The Company also has a $2.25 billion, five year credit facility that matures in June 2028 that contains an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments. In addition, the Company also has a five year, $3.5 billion credit facility maturing in June 2029 that contains an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to SOFR, the effective federal funds rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The Company had no borrowings through September 30, 2024 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 $10.3 billion in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At September 30, 2024, the Company had $4.4 billion of commercial paper outstanding, which was repaid in early October 2024. At June 30, 2024, the Company had no commercial paper borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:
Three Months Ended
September 30,
2024
2023
Average daily borrowings (in billions)
$
4.8
$
4.1
Weighted average interest rates
5.3
%
5.3
%
Weighted average maturity (approximately in days)
2 days
2 days
The Company’s U.S., Canadian and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days. At September 30, 2024 and June 30, 2024, the Company had $679.1 million and $385.4 million of outstanding obligations related to reverse repurchase agreements. All outstanding reverse repurchase obligations matured and were fully paid in early October 2024 and early July 2024, respectively. The Company has $7.3 billion available on a committed basis under the U.S. reverse repurchase agreements. Details of the reverse repurchase agreements are as follows:
Three Months Ended
September 30,
2024
2023
Average outstanding balances (in billions)
$
3.8
$
1.4
Weighted average interest rates
5.3
%
5.3
%
15
Note 10. Debt
The Company issued four series of fixed-rate notes with staggered maturities of 7 and 10 years totaling $4.0 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, 2024, the Company issued $1.0 billion of senior notes due in 2034 bearing a fixed interest rate of 4.450%. In connection with the senior notes issuance, the Company 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 $1.0 billion (of which $400.0 million were executed during the three months ended September 30, 2024 and $600.0 million were executed on the day of issuance). Since these derivative contracts were classified as cash flow hedges, the unamortized loss of $12.5 million was deferred in accumulated other comprehensive income and will be amortized to earnings over the life of the issued Notes as the interest payments are made.
is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. Compensation expense relating to the issuance of cash-settled units is recorded over the vesting period and is initially based on the fair value of the award on the grant date and is subsequently remeasured at each reporting date during the vesting period based on the change in the ADP stock price. Dividend cash equivalents are paid on share-settled units, and dividend cash equivalents are not paid on cash-settled units.
•Performance-Based Restricted Stock Units. Performance-based restricted stock units generally vest over a one to three year performance period and a subsequent service period of up to 38 months. Under these programs, the Company communicates “target awards” at the beginning of the performance period with possible payouts at the end of the performance period ranging from 0% to 200% of the “target awards.” Awards are generally forfeited if the employee ceases to be employed by the Company prior to vesting.
Performance-based restricted stock units cannot be transferred and are settled in either cash or stock, depending on the employee's home country. Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recognized over the vesting period initially based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded during the performance period based on probable and actual performance against targets. In addition, compensation expense is remeasured at each reporting period during the vesting period based on the change in the ADP stock price. Compensation expense relating to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded based on the probable and actual performance against targets. Dividend equivalents are paid on awards under the performance-based restricted stock unit program.
•Employee Stock Purchase Plan. The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to 95% of the market value for the Company's common stock on the last day of the offering period. This plan has been deemed non-compensatory and, therefore, no compensation expense has been recorded.
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company repurchased 1.4 million and 1.0 million shares in the three months ended September 30, 2024 and 2023, 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.
17
The following table represents pre-tax stock-based compensation expense for the three months ended September 30, 2024 and 2023, respectively:
Three Months Ended
September 30,
2024
2023
Operating expenses
$
9.1
$
7.4
Selling, general and administrative expenses
42.3
42.8
Research and development
9.2
8.6
Total stock-based compensation expense
$
60.6
$
58.8
During the three months ended September 30, 2024, the following activity occurred under the Company’s existing plans.
Stock Options:
Number of Options (in thousands)
Weighted Average Price (in dollars)
Options outstanding at July 1, 2024
2,042
$
159
Options granted
—
$
—
Options exercised
(498)
$
162
Options forfeited/cancelled
—
$
—
Options outstanding at September 30, 2024
1,544
$
158
Time-Based Restricted Stock and Time-Based Restricted Stock Units:
Number of Shares (in thousands)
Number of Units (in thousands)
Restricted shares/units outstanding at July 1, 2024
124
1,053
Restricted shares/units granted
—
578
Restricted shares/units vested
(114)
(418)
Restricted shares/units forfeited
—
(11)
Restricted shares/units outstanding at September 30, 2024
Note 15. Reclassifications out of Accumulated Other Comprehensive Income (“AOCI”)
Changes in AOCI by component are as follows:
Three Months Ended
September 30, 2024
Currency Translation Adjustment
Net Gains/Losses on Available-for-sale Securities
Cash Flow Hedging Activities
Pension Liability
Accumulated Other Comprehensive (Loss) /Income
Balance at June 30, 2024
$
(378.8)
$
(1,178.0)
$
(20.0)
$
(231.5)
$
(1,808.3)
Other comprehensive income/(loss) before reclassification adjustments
49.2
864.4
(12.5)
—
901.1
Tax effect
—
(197.9)
3.1
—
(194.8)
Reclassification adjustments to net earnings
—
0.2
(A)
1.1
(C)
1.1
(B)
2.4
Tax effect
—
—
(0.3)
(0.3)
(0.6)
Balance at September 30, 2024
$
(329.6)
$
(511.3)
$
(28.6)
$
(230.7)
$
(1,100.2)
Three Months Ended
September 30, 2023
Currency Translation Adjustment
Net Gains/Losses on Available-for-sale Securities
Cash Flow Hedging Activities
Pension Liability
Accumulated Other Comprehensive (Loss) /Income
Balance at June 30, 2023
$
(340.8)
$
(1,705.6)
$
(23.3)
$
(236.1)
$
(2,305.8)
Other comprehensive income/(loss) before reclassification adjustments
(44.6)
(150.6)
—
—
(195.2)
Tax effect
—
30.1
—
—
30.1
Reclassification adjustments to net earnings
—
1.9
(A)
1.1
(C)
1.0
(B)
4.0
Tax effect
—
(0.4)
(0.3)
(0.2)
(0.9)
Balance at September 30, 2023
$
(385.4)
$
(1,824.6)
$
(22.5)
$
(235.3)
$
(2,467.8)
(A) Reclassification adjustments out of AOCI are included within Other (income)/expense, net, on the Statements of Consolidated Earnings.
(B) Reclassification adjustments out of AOCI are included in net pension (income)/expense (see Note 11).
(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings (see Note 10).
Note 16. Interim Financial Data by Segment
Based upon similar economic and operational characteristics, the Company’s strategic business units have been aggregated into the following two reportable segments: Employer Services and PEO Services. The primary components of the “Other” segment are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to transformation, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, interest expense and corporate interest income. 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.