What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-05-01 · 240 added, 310 removed, 455 unchanged (55% of the section changed)

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(In millions, except per share amounts)

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Three Months Ended

September 30,

Revenues, other than interest on funds held

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TOTAL EXPENSES 2,730.4 2,811.2

Other income, net ( 44.6 ) ( 21.0 ) ( 145.2 ) ( 67.5 )

Other (income)/expense, net ( 24.9 ) ( 54.6 )

EARNINGS BEFORE INCOME TAXES 765.2 739.1

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Diluted weighted average shares outstanding 430.0 435.4

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 12,643.6 million and $ 10,798.3 million for the three months ended March 31, 2020 and 2019, respectively, and $ 35,525.8 million and $ 32,178.8 million for the nine months ended March 31, 2020 and 2019, respectively.

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 10,925.8 million and $ 10,510.6 million for the three months ended September 30, 2020 and 2019, respectively.

See notes to the Consolidated Financial Statements.

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(In millions)

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Three Months Ended

September 30,

Net earnings $ 602.1 $ 582.4

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Tax effect 0.8 —

Amortization of unrealized loss on cash flow hedging activities 0.6 —

Tax effect — —

Reclassification of pension liability adjustment to net earnings 2.5 ( 1.7 )

Tax effect ( 1.0 ) 0.5

Other comprehensive income/(loss), net of tax ( 3.2 ) 203.1 22.9 267.9

Other comprehensive income, net of tax 30.7 23.4

Comprehensive income $ 632.8 $ 605.8

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(In millions, except per share amounts)

March 31, June 30,

September 30, June 30,

Current assets:

Cash and cash equivalents $ 1,613.1 $ 1,908.5

Short-term marketable securities 3.2 10.5

Accounts receivable, net of allowance for doubtful accounts of $ 89.1 and $ 92.5 , respectively

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authorized, 1,000.0 shares;

issued, 638.7 shares at March 31, 2020 and June 30, 2019;

outstanding, 429.8 and 434.2 shares at March 31, 2020 and June 30, 2019, respectively

issued, 638.7 shares at September 30, 2020 and June 30, 2020;

outstanding, 429.3 and 429.9 shares at September 30, 2020 and June 30, 2020, respectively

Capital in excess of par value 1,348.4 1,333.8

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Treasury stock - at cost:

208.9 and 204.5 shares at March 31, 2020 and June 30, 2019, respectively

209.4 and 208.9 shares at September 30, 2020 and June 30, 2020, respectively

( 14,264.0 ) ( 14,067.0 )

Accumulated other comprehensive loss ( 234.4 ) ( 257.3 )

Accumulated other comprehensive income (loss) 15.9 ( 14.8 )

Total stockholders’ equity 5,808.9 5,752.2

Total liabilities and stockholders’ equity $ 42,390.1 $ 39,165.5

(A) As of June 30, 2019, $ 261.4 million of long-term marketable securities and $ 0.6 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements.

Refer to Note 9 .

(A ) As of June 30, 2020, $ 13.6 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.

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(In millions)

Nine Months Ended

Three Months Ended

September 30,

Cash Flows from Operating Activities:

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Stock-based compensation expense 33.8 37.1

Net pension expense ( 14.6 ) 41.0

Net pension income ( 11.1 ) ( 2.7 )

Net amortization of premiums and accretion of discounts on available-for-sale securities 12.4 12.2

Impairment of intangible assets — 12.1

Impairment of assets 2.8 —

Gain on sale of assets ( 0.2 ) ( 1.9 )

Other 6.1 11.9

Changes in operating assets and liabilities, net of effects from acquisitions:

Changes in operating assets and liabilities:

Increase in accounts receivable ( 78.7 ) ( 96.8 )

Increase in other assets ( 454.8 ) ( 391.7 )

(Decrease) / increase in accounts payable ( 3.6 ) 25.4

(Decrease) / increase in accrued expenses and other liabilities ( 34.0 ) 194.5

Increase/(Decrease) in accounts payable 5.7 ( 15.1 )

Decrease in accrued expenses and other liabilities ( 23.1 ) ( 91.6 )

Net cash flows provided by operating activities 481.9 432.8

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Additions to intangibles ( 76.4 ) ( 88.2 )

Acquisitions of businesses, net of cash acquired — ( 120.4 )

Proceeds from the sale of property, plant, and equipment and other assets 23.6 7.9

Net cash flows provided by / (used in) investing activities 478.6 ( 1,197.9 )

Proceeds from sale of property, plant, and equipment and other assets 0.2 23.4

Net cash flows provided by investing activities 264.2 122.2

Cash Flows from Financing Activities:

Net increase in client funds obligations 1,351.5 8,612.0

Net increase/(decrease) in client funds obligations 3,203.3 ( 8,063.3 )

Payments of debt ( 1,000.6 ) ( 0.5 )

Proceeds from the issuance of debt 991.1 —

Settlement of cash flow hedges ( 43.6 ) —

Repurchases of common stock ( 213.6 ) ( 309.7 )

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Dividends paid ( 391.0 ) ( 343.3 )

Net payments of reverse repurchase agreements ( 262.0 ) —

Other — ( 5.3 )

Net cash flows (used in) / provided by financing activities ( 964.0 ) 6,945.4

Net (payments)/proceeds related to reverse repurchase agreements ( 13.6 ) 166.3

Net proceeds of commercial paper borrowings — 3,536.7

Net cash flows provided by/(used in) financing activities 2,524.1 ( 5,045.9 )

Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents 37.9 ( 33.1 )

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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”).

Revision of Previously Reported Financial Information

The Company has historically classified certain fees collected from worksite employers for certain benefits within PEO revenues, and the associated costs of these benefits have historically been classified within operating expenses as PEO zero-margin benefits pass-through costs in the Company's Statements of Consolidated Earnings.

During the quarter ended September 30, 2019, management determined that the Company does not retain risk and is acting as the agent, rather than as the primary obligor, for a portion of the fees collected for worksite employee benefits and the worksite employer is primarily responsible for fulfilling certain aspects of the service and has discretion in establishing price.

Accordingly, the accompanying Statements of Consolidated Earnings for the three and nine months ended March 31, 2019 have been revised to correct the amounts previously reported on a gross basis to a net basis by reducing PEO revenues and operating expenses for associated costs of an equal amount, as follows:

Three Months Ended

March 31, 2019

As reported Revision As revised

PEO revenues $ 1,133.1 ( 19.2 ) $ 1,113.9

TOTAL REVENUES 3,847.4 ( 19.2 ) 3,828.2

Operating expenses 1,874.5 ( 19.2 ) 1,855.3

Total Expenses 2,883.9 ( 19.2 ) 2,864.7

EARNINGS BEFORE INCOME TAXES 984.5 — 984.5

Provision for income taxes 230.8 — 230.8

NET EARNINGS $ 753.7 — $ 753.7

Nine Months Ended

March 31, 2019

As reported Revision As revised

PEO revenues $ 3,176.8 ( 45.6 ) $ 3,131.2

TOTAL REVENUES 10,676.5 ( 45.6 ) 10,630.9

Operating expenses 5,370.4 ( 45.6 ) 5,324.8

Total Expenses 8,371.7 ( 45.6 ) 8,326.1

EARNINGS BEFORE INCOME TAXES 2,372.3 — 2,372.3

Provision for income taxes 554.9 — 554.9

NET EARNINGS $ 1,817.4 — $ 1,817.4

The correction of these previously reported amounts had no impact on the Company's earnings before income taxes, net earnings, consolidated financial condition or cash flows.

In addition, corresponding revisions have been made elsewhere in the Company's consolidated footnote disclosures, where applicable, including its Interim Financial Data by Segment disclosure.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective July 1, 2019, the Company adopted accounting standard update (“ASU”) 2016-02, “Leases (ASC 842)” under the optional transition method.

As a result, the Company recorded on the Consolidated Balance Sheets total operating lease right-of-use (“ROU”) assets of $ 573.3 million and total operating lease liabilities of $ 522.6 million, as of the adoption date.

The adoption did not have an impact on our Statements of Consolidated Earnings or Statements of Consolidated Cash Flows.

Refer to Note 7 for further details.

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.

Recently Issued Accounting Pronouncements

The following table summarizes recent ASU's issued by the Financial Accounting Standards Board (“FASB”) which have been assessed:

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

ASU 2020-04 Reference Rate Reform

Facilitation of the Effects of Reference Rate Reform on Financial Reporting This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate (LIBOR) reform on financial reporting.

March 12, 2020

(Fiscal 2020) through

December 31, 2022

(Fiscal 2023) The Company is assessing the effects of the Reference Rate Reform.

The Company has not yet determined the impact of this ASU on its consolidated results of operations, financial condition, or cash flows.

ASU 2018-14 Compensation-Retirement Benefits-Defined Benefit Plans 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.

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(Fiscal 2022) 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.

ASU 2018-13 Fair Value Measurement This update modifies the disclosure requirements on fair value measurements.

Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis.

(Fiscal 2021) 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.

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 will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables.

Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument.

In addition, this update modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.

In November 2019, the FASB issued Accounting Standard Update 2019-11 Codification Improvements to Topic 326, Financial-Credit Losses which provides clarification and eliminates inconsistencies to amendments included in Update 2016-13.

(Fiscal 2021) The Company is evaluating the impact of this ASU on its consolidated results of operations, financial condition, or cash flows.

Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic pillars:

Human Capital Management (“HCM”), HR Outsourcing (“HRO”), and Global (“Global”) Solutions, with separate disaggregation for PEO zero-margin benefits pass-through revenues and client fund interest revenues.

The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

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The Company has further disaggregated HRO to separate out its PEO zero-margin benefits pass-through revenues.

The Company recognizes client fund interest revenues on collected but not yet remitted funds held for clients in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.

The following tables provide details of revenue by our strategic pillars with disaggregation for PEO zero-margin benefits pass-throughs and client fund interest, and include a reconciliation to the Company’s reportable segments:

Three Months Ended Nine Months Ended

March 31, March 31,

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.

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:

Three Months Ended

September 30,

Types of Revenues 2020 2019

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Total Revenues $ 3,470.7 $ 3,495.7

Reconciliation of disaggregated revenue to our reportable segments for the three months ended March 31, 2020:

Types of Revenues Employer Services PEO Other Total

HCM $ 1,859.8 $ — $ ( 1.5 ) $ 1,858.3

HRO, excluding PEO zero-margin benefits pass-throughs 254.1 489.0 ( 0.7 ) 742.4

PEO zero-margin benefits pass-throughs — 747.9 — 747.9

Global 540.3 — — 540.3

Interest on funds held for clients 157.5 1.4 — 158.9

Total Segment Revenues $ 2,811.7 $ 1,238.3 $ ( 2.2 ) $ 4,047.8

Reconciliation of disaggregated revenue to our reportable segments for the three months ended March 31, 2019:

Types of Revenues Employer Services PEO Other Total

HCM $ 1,774.7 $ — $ ( 3.3 ) $ 1,771.4

HRO, excluding PEO zero-margin benefits pass-throughs 233.2 448.6 ( 3.1 ) 678.7

PEO zero-margin benefits pass-throughs — 665.3 — 665.3

Global 545.4 — — 545.4

Interest on funds held for clients 165.8 1.6 — 167.4

Total Segment Revenues $ 2,719.1 $ 1,115.5 $ ( 6.4 ) $ 3,828.2

Reconciliation of disaggregated revenue to our reportable segments for the nine months ended March 31, 2020:

Reconciliation of disaggregated revenue to our reportable segments for the three months ended September 30, 2020:

Types of Revenues Employer Services PEO Other Total

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Total Segment Revenues $ 2,376.8 $ 1,095.9 $ ( 2.0 ) $ 3,470.7

Reconciliation of disaggregated revenue to our reportable segments for the nine months ended March 31, 2019:

Reconciliation of disaggregated revenue to our reportable segments for the three months ended September 30, 2019:

Types of Revenues Employer Services PEO Other Total

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Therefore, the Company does not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Changes in deferred revenue related to set up fees for the nine months ended March 31, 2020 were as follows:

Changes in deferred revenue related to set up fees for the three months ended September 30, 2020 were as follows:

Contract Liability

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Contract liability, net of revenue recognized on contracts during the period 30.7

Currency adjustments ( 6.7 )

Contract liability, March 31, 2020 $ 534.6

Currency translation adjustments 16.2

Contract liability, September 30, 2020 $ 525.8

Earnings per Share (“EPS”)

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Shares Diluted

Three Months Ended March 31, 2020

Net earnings $ 820.9 $ 820.9

Weighted average shares (in millions) 430.0 0.9 0.9 431.8

EPS $ 1.91 $ 1.90

Three Months Ended March 31, 2019

Net earnings $ 753.7 $ 753.7

Weighted average shares (in millions) 434.1 1.2 1.3 436.6

EPS $ 1.74 $ 1.73

Nine Months Ended March 31, 2020

Three Months Ended September 30, 2020

Net earnings $ 602.1 $ 602.1

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EPS $ 1.40 $ 1.40

Nine Months Ended March 31, 2019

Three Months Ended September 30, 2019

Net earnings $ 582.4 $ 582.4

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EPS $ 1.35 $ 1.34

Options to purchase 1.3 million and 0.8 million shares of common stock for the three months ended March 31, 2020 and 2019, respectively, and 1.1 million and 0.6 million shares of common stock for the nine months ended March 31, 2020 and 2019, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Other Income, Net

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Options to purchase 2.1 million and 0.7 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.

Other (Income)/Expense, Net

Three Months Ended

September 30,

Interest income on corporate funds $ ( 13.8 ) $ ( 32.3 )

Realized gains on available-for-sale securities ( 2.9 ) ( 0.6 ) ( 13.0 ) ( 1.2 )

Realized losses on available-for-sale securities 0.4 0.5 1.1 2.6

Impairment of intangible assets — — — 12.1

Realized (gains) / losses on available-for-sale securities, net ( 0.3 ) ( 2.3 )

Impairment of assets 2.8 —

Gain on sale of assets ( 0.2 ) ( 1.9 )

Gain on sale of investment — — ( 0.2 ) —

Non-service components of pension expense, net (see Note 11) ( 30.0 ) ( 5.9 ) ( 61.1 ) ( 5.3 )

Other income, net $ ( 44.6 ) $ ( 21.0 ) $ ( 145.2 ) $ ( 67.5 )

In fiscal 2019, the Company wrote down $ 12.1 million of internally developed software which was determined to have no future use due to redundant software identified as part of an acquisition.

In addition, the Company recognized a gain of $ 4.1 million for the sale of assets in relation to the Service Alignment Initiative.

Non-service components of pension income, net (see Note 11) ( 13.4 ) ( 18.1 )

Other (income)/expense, net $ ( 24.9 ) $ ( 54.6 )

In fiscal 2021, the Company recorded impairment charges of $ 2.8 million as a r esult of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.

Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at March 31, 2020 and June 30, 2019 were as follows:

March 31, 2020

Corporate investments and funds held for clients at September 30, 2020 and June 30, 2020 were as follows:

September 30, 2020

Losses Fair Market Value (A)

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1,037.0 22.6 — 1,059.6

Commercial mortgage-backed securities 810.1 54.5 — 864.6

Canadian provincial bonds 652.7 34.8 — 687.5

Municipal bonds 581.4 17.0 ( 0.5 ) 597.9

Other securities 974.5 41.7 — 1,016.2

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1,018.7 23.1 — 1,041.8

Commercial mortgage-backed securities 814.3 53.9 — 868.2

Canadian provincial bonds 676.6 33.6 — 710.2

Municipal bonds 596.1 16.4 ( 0.1 ) 612.4

Other securities 1,018.1 41.1 ( 0.2 ) 1,059.0

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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 did not transfer any assets between Levels during the nine months ended March 31, 2020 or fiscal 2019.

In addition, the Company concurred with and did not adjust the prices obtained from the independent pricing service.

The Company had no available-for-sale securities included in Level 1 or Level 3 at March 31, 2020.

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 March 31, 2020, are as follows:

March 31, 2020

The Company concurred with and did not adjust the prices obtained from the independent pricing service.

The Company had no available-for-sale securities included in Level 1 or Level 3 at September 30, 2020.

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:

September 30, 2020

Securities in Unrealized Loss Position Less Than 12 Months Securities in Unrealized Loss Position Greater Than 12 Months Total

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Canadian government obligations and Canadian government agency obligations

( 0.3 ) 24.6 — — ( 0.3 ) 24.6

Commercial mortgage-backed securities — — — 1.5 — 1.5

Canadian provincial bonds — — — — — —

Municipal bonds ( 0.5 ) 44.1 — — ( 0.5 ) 44.1

Other securities — 12.9 — — — 12.9

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Canadian government obligations and Canadian government agency obligations

( 6.0 ) 662.7 — 1.1 ( 6.0 ) 663.8

Commercial mortgage-backed securities — — — 1.5 — 1.5

Canadian provincial bonds — — — — — —

Municipal bonds — 1.5 ( 0.1 ) 23.3 ( 0.1 ) 24.8

Other securities ( 0.2 ) 17.1 — — ( 0.2 ) 17.1

$ ( 0.7 ) $ 63.0 $ — $ 1.5 $ ( 0.7 ) $ 64.5

At March 31, 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 April 2020 through March 2030 .

At March 31, 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 $ 2,045.2 million , $ 1,483.6 million , $ 391.5 million , and $ 121.0 million , respectively.

These securities are collateralized by the cash flows of the

underlying pools of receivables.

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 October 2020 through September 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 $ 1,520.8 million, $ 1,100.4 million, $ 321.9 million, and $ 97.1 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 March 31, 2020.

At March 31, 2020, U.S.

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 $ 614.7 million and $ 590.8 million, respectively.

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 April 2020 through December 2029 .

At March 31, 2020, other securities and their fair value primarily include U.S.

government agency commercial mortgage-backed securities of $ 859.0 million issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association, AA-rated United Kingdom Gilt securities of $ 190.2 million, and AAA-rated and AA-rated supranational bonds of $ 91.7 million.

At September 30, 2020, other securities and their fair value primarily include municipal bonds of $ 576.7 million, AA-rated United Kingdom Gilt securities of $ 197.3 million, and AAA-rated and AA-rated sovereign bonds of $ 77.2 million.

Classification of corporate investments on the Consolidated Balance Sheets is as follows:

March 31, June 30,

September 30, June 30,

Corporate investments:

Cash and cash equivalents $ 1,613.1 $ 1,908.5

Short-term marketable securities 3.2 10.5

Long-term marketable securities (a) — 261.4

Short-term marketable securities (a) 3.4 —

Long-term marketable securities (b) — 13.6

Total corporate investments $ 1,616.5 $ 1,922.1

(a) - Long-term marketable securities are included within Other assets on the Consolidated Balance Sheets.

(a) - Short-term marketable securities are included within Other current assets on the Consolidated Balance Sheets.

(b) - Long-term marketable securities are included within Other assets on the Consolidated Balance Sheets.

Funds held for clients represent assets that, based upon the Company's intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as client funds obligations on our Consolidated Balance Sheets.

Funds held for clients have been invested in the following categories:

March 31, June 30,

September 30, June 30,

Funds held for clients:

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The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date.

The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling $ 30,359.0 million and $ 29,144.5 million at March 31, 2020 and June 30, 2019, respectively.

The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling $ 29,098.4 million and $ 25,831.6 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 March 31, 2020 and June 30, 2019, $ 27,689.8 million and $ 26,648.0 million, respectively, are held in the grantor trust.

Of the Company’s funds held for clients at September 30, 2020 and June 30, 2020, $ 26,805.6 million and $ 23,740.0 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.

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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.

Approximately 77 % of the available-for-sale securities held a AAA-rating or AA-rating at March 31, 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 March 31, 2020.

Expected maturities of available-for-sale securities at March 31, 2020 are as follows:

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.

Approximately 79 % 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.

Expected maturities of available-for-sale securities at September 30, 2020 are as follows:

One year or less $ 5,617.8

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Total available-for-sale securities $ 21,205.1

During the first quarter of the fiscal year ending June 30, 2020 ("fiscal 2020"), the Company adopted ASC 842 using the optional transition method under which financial results reported in periods prior were not adjusted and continue to be reported in accordance with historic accounting under ASC 840 - Leases.

The Company elected the following practical expedients permitted under the lease standard:

• The Company did not reassess prior conclusions about lease identification, lease classification or initial direct costs, and did not use hindsight for leases existing at adoption date.

• The Company did not record leases with an initial term of 12 months or less on the consolidated balance sheet but continues to expense them on a straight-line basis over the lease term.

• The Company elected to combine lease and non-lease components for our facilities leases only.

Non-lease components consist primarily of maintenance services.

The Company records leases on the consolidated balance sheets as operating lease ROU assets, records the current portion of operating lease liabilities within accrued expenses and other current liabilities and, separately, records long-term operating lease liabilities.

The 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.

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ROU assets also include adjustments related to prepaid or deferred lease payments and lease incentives.

As of March 31, 2020, total operating lease ROU assets were $ 521.1 million, current and long-term operating lease liabilities were approximately $ 98.2 million and $ 361.2 million, respectively.

The difference between total ROU assets and total lease liabilities are primarily attributable to pre-payments of our obligations and the recognition of various lease incentives.

The components of operating lease expense were as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

Three Months Ended

September 30,

Operating lease cost $ 39.1 $ 44.2

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Total operating lease cost $ 41.6 $ 48.2

Information related to our operating lease ROU assets and operating lease liabilities was as follows:

Nine Months Ended

The following table provides supplemental cash flow information related to the Company's leases:

Three Months Ended

September 30,

Cash paid for operating lease liabilities $ 45.3 $ 40.2

Operating lease ROU assets obtained in exchange for new operating lease liabilities $ 23.2 $ 6.7

Other information related to our operating lease liabilities is as follows:

September 30, June 30,

Weighted-average remaining lease term (in years) 6 6

Weighted-average discount rate 2.3 % 2.3 %

As of March 31, 2020, maturities of operating lease liabilities are as follows:

Three months ending June 30, 2020 $ 28.2

As of September 30, 2020, maturities of operating lease liabilities are as follows:

Nine months ending June 30, 2021 $ 77.8

Twelve months ending June 30, 2022 93.7

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Net lease obligations $ 425.1

Current operating lease liabilities were approximately $ 94.7 million and $ 95.5 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.

Goodwill and Intangible Assets, net

Changes in goodwill for the nine months ended March 31, 2020 are as follows:

Changes in goodwill for the three months ended September 30, 2020 are as follows:

Services Total

2 unchanged sentences

Currency translation adjustments 16.9 — 16.9

Balance at March 31, 2020 $ 2,294.5 $ 4.8 $ 2,299.3

Balance at September 30, 2020 $ 2,321.5 $ 4.8 $ 2,326.3

Components of intangible assets, net, are as follows:

March 31, June 30,

September 30, June 30,

Intangible assets:

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The weighted average remaining useful life of the intangible assets is 6 years ( 6 years for software and software licenses, 5 years for customer contracts and lists, and 3 years for other intangibles).

Amortization of intangible assets was $ 71.9 million and $ 57.1 million for the three months

ended March 31, 2020 and 2019, respectively, and $ 211.0 million and $ 166.0 million for the nine months ended March 31, 2020 and 2019, respectively.

Amortization of intangible assets was $ 84.2 million and $ 69.4 million for the three months ended September 30, 2020 and 2019, respectively.

Estimated future amortization expenses of the Company's existing intangible assets are as follows:

Three months ending June 30, 2020 $ 77.2

Nine months ending June 30, 2021 $ 232.1

Twelve months ending June 30, 2022 $ 256.6

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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 March 31, 2020 under the credit agreements.

The Company had no borrowings through September 30, 2020 under the credit agreements.

The Company's U.S.

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Maturities of commercial paper can range from overnight to up to 364 days .

At March 31, 2020 and June 30, 2019, the Company had no commercial paper borrowing outstanding.

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:

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Three Months Ended

September 30,

Average daily borrowings (in billions) $ 2.4 $ 4.0

Weighted average interest rates 0.1 % 2.3 %

Weighted average maturity (approximately in days) 1 day 1 day 2 days 2 days

Weighted average maturity (approximately in days) 1 day 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 March 31, 2020, there were no outstanding obligations related to reverse repurchase agreements.

At June 30, 2019, the Company had $262.0 million of outstanding obligations related to the reverse repurchase agreements, which were fully paid in early July 2019.

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:

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Three Months Ended

September 30,

Average outstanding balances $ 152.4 $ 426.6

Weighted average interest rates 0.3 % 2.0 %

The Company has fixed-rate notes with 5 -year and 10 -year maturities for an aggregate principal amount of $ 2.0 billion (collectively the “Notes”).

The Company has two series of fixed-rate notes with 10 -year, staggered maturities for an aggregate principal amount of $ 2.0 billion (collectively the “Notes”).

The Notes are senior unsecured obligations, and interest is payable in arrears, semi-annually.

The principal amounts and associated effective interest rates of the Notes and other debt as of March 31, 2020 and June 30, 2019, are as follows:

Debt instrument Effective Interest Rate March 31, 2020 June 30, 2019

During the three months ended September 30, 2020, the Company issued $ 1.0 billion of senior notes due in 2030 bearing a fixed interest rate of 1.250 %.

The Company also redeemed $ 1.0 billion of senior notes bearing a fixed interest rate of 2.250 %.

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 $ 1.0 billion (of which $ 400.0 million were entered into during fiscal year 2020 and $ 600.0 million were entered into on the day of issuance).

Since these derivative contracts were classified as cash flow hedges, the unamortized loss of $ 43.6 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.

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:

Debt instrument Effective Interest Rate September 30, 2020 June 30, 2020

Fixed-rate 2.250 % notes due September 15, 2020

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3.47 % 1,000.0 1,000.0

Fixed-rate 1.250 % notes due September 1, 2030

1.83 % 1,000.0 —

Other 8.2 8.4

2,008.2 2,008.4

current portion ( 1,001.8 ) ( 2.5 )

current portion (a) ( 1.8 ) ( 1,001.8 )

unamortized discount and debt issuance costs ( 12.5 ) ( 3.8 )

Total long-term debt $ 1,993.9 $ 1,002.8

(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 March 31, 2020, the fair value of the Notes, based on Level 2 inputs, was $ 2,070.0 million.

As of September 30, 2020, the fair value of the Notes, based on Level 2 inputs, was $ 2,115.0 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.

In anticipation of the refinancing of our fixed-rate 2.25 % notes due September 15, 2020, from December 3, 2019 through March 4, 2020, the Company entered into a series of treasury rate lock transactions, with an aggregate notional amount totaling $ 400.0 million, to hedge its exposure to changes in interest rates through the completion of the refinancing.

The derivative contracts entered into during fiscal 2020 have been designated as cash-flow hedges and will be terminated upon completion of the refinancing.

Changes in the derivative’s fair value are recorded each period in other comprehensive income with a corresponding current asset or liability and, upon settlement, the aggregate amount in accumulated other comprehensive income will be amortized into net income over the term of the future debt instrument.

Refer to Note 15 for the impact to accumulated other comprehensive income.

There are no cash flows associated with the derivative until settlement occurs with the counter-parties.

The treasury rate lock derivatives are classified as Level 2 in the fair value hierarchy as their value is determined using observable inputs such as forward treasury rates.

Employee Benefit Plans

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Stock-based compensation consists of the following:

The Company's share-based compensation consists of stock options, time-based restricted stock, time-based restricted stock units, performance-based restricted stock, and performance-based restricted stock units.

The Company also offers an employee stock purchase plan for eligible employees.

• Stock Options.

Stock options are granted to employees at exercise prices equal to the fair market value of the Company's common stock on the dates of grant.

Stock options generally vest ratably over 4 years and have a term of 10 years.

Compensation expense is measured based on the fair value of the stock option on the grant date and recognized on a straight-line basis over the vesting period.

Stock options are 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.

• 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 3 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 2 years.

Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.

Time-based restricted stock cannot be transferred during the vesting period.

Compensation expense relating to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period.

Dividends are paid on shares awarded under the time-based restricted stock program.

Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period.

Compensation expense relating to the issuance of time-based restricted stock units is recorded over the vesting period and is initially based on the fair value of the award on the grant date and is subsequently remeasured at each reporting date during the vesting period based on the change in the ADP stock price.

No dividend equivalents are paid on units awarded under the time-based restricted stock unit program.

• Performance-Based Restricted Stock and Performance-Based Restricted Stock Units.

Performance-based restricted stock and performance-based restricted stock units generally vest over a one to three -year performance period and a subsequent service period of up to 38 months.

Under these programs, the Company communicates “target awards” at the beginning of the performance period with possible payouts at the end of the performance period ranging from 0 % to 150 % of the “target awards.” Awards are generally forfeited if the employee ceases to be employed by the Company prior to vesting.

Performance-based restricted stock cannot be transferred during the vesting period.

Compensation expense relating to the issuance of performance-based restricted stock is recognized over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of shares awarded during the performance period based on probable and actual performance against targets.

After the performance period, if the performance targets are achieved, employees are eligible to receive dividends during the remaining vesting period on shares awarded under the performance-based restricted stock program.

Performance-based restricted stock units cannot be transferred and are settled in either cash or stock, depending on the employee's home country.

Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recognized over the vesting period initially based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded during the performance period based on probable and actual performance against targets.

In addition, compensation expense is remeasured at each reporting period during the vesting period based on the change in the ADP stock price.

Compensation expense relating to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded based on the probable and actual performance against targets.

Dividend equivalents are paid on awards under the performance-based restricted stock unit program.

• Employee Stock Purchase Plan.

The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to 95 % of the market value for the Company's common stock on the last day of the offering period.

This plan has been deemed non-compensatory and, therefore, no compensation expense has been recorded.

The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards.

From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program.

During the second quarter of fiscal 2020, the Board of Directors authorized the repurchase of $ 5 billion of our common stock, replacing in its entirety the previous 2015 authorization to purchase up to 25 million shares of our common stock.

The Company repurchased 2.5 million and 1.6 million shares in the three months ended March 31, 2020 and 2019, respectively.

The Company repurchased 6.2 million and 5.4 million shares in the nine months ended March 31, 2020 and 2019, respectively, of which $ 536.6 million in the nine months ended March 31, 2020 were repurchased under the November 2019 authorization.

The Company repurchased 1.7 million and 1.9 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.

The following table represents pre-tax stock-based compensation expense for the three and nine months ended March 31, 2020 and 2019, respectively:

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

The following table represents pre-tax stock-based compensation expense for the three months ended September 30, 2020 and 2019, respectively:

Three Months Ended

September 30,

Operating expenses $ 3.6 $ 4.0

2 unchanged sentences

Total stock-based compensation expense $ 33.8 $ 37.1

The methods and assumptions used in the determination of the fair value of stock-based awards are consistent with those described in the Company's Form 10-K for fiscal 2019.

See the Company's Annual Report on Form 10-K for fiscal 2019 for a detailed description of the Company's stock-based compensation awards and employee stock purchase plan, including information related to vesting terms, service and performance conditions, payout percentages, and process for estimating the fair value of stock options granted.

During the three months ended September 30, 2020, the following activity occurred under the Company's existing plans:

Stock Options:

(in thousands) Weighted

Average Price

Options outstanding at July 1, 2020 3,510 $ 126

Options granted 1,153 $ 139

Options exercised ( 156 ) $ 95

Options forfeited/cancelled ( 8 ) $ 144

Options outstanding at September 30, 2020 4,499 $ 130

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, 2020 905 180

Restricted shares/units granted 636 103

Restricted shares/units vested ( 340 ) ( 73 )

Restricted shares/units forfeited ( 9 ) ( 1 )

Restricted shares/units outstanding at September 30, 2020 1,192 209

Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:

Number of Shares

(in thousands) Number of Units

(in thousands)

Restricted shares/units outstanding at July 1, 2020 179 851

Restricted shares/units granted 156 167

Restricted shares/units vested ( 70 ) ( 279 )

Restricted shares/units forfeited ( 2 ) ( 5 )

Restricted shares/units outstanding at September 30, 2020 263 734

The fair value for stock options granted was estimated at the date of grant using the following assumptions:

Three Months Ended

September 30,

Risk-free interest rate 0.1 % 1.4 %

Dividend yield 2.6 % 1.9 %

Weighted average volatility factor 25.8 % 19.3 %

Weighted average expected life (in years) 5.4 5.4

Weighted average fair value (in dollars) $ 21.66 $ 24.40

Pension Plans

The components of net pension expense were as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

The components of net pension income were as follows:

Three Months Ended

September 30,

Service cost – benefits earned during the period $ 1.2 $ 14.9

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Net amortization and deferral 2.5 1.6

Settlement charges, special termination benefits and plan curtailment ( 17.0 ) 7.8 ( 22.1 ) 35.9

Net pension expense $ ( 14.2 ) $ 9.5 $ ( 14.6 ) $ 41.0

The US pension plan, which is currently closed to new entrants, will be frozen effective July 1, 2020.

Benefits under the plan will continue to accrue through June 30, 2020, and as of July 1, 2020 and onward, participants will retain their accrued benefits and will not accrue any future benefits due to service rendered or pay increases.

As a result of the freeze, the Company recognized $ 17.0 million of prior service credits during the three months ended March 31, 2020 within Other Income, net, which were previously recognized within accumulated other comprehensive income (see Note 15).

In fiscal 2018, the Company offered a Voluntary Early Retirement Program (“VERP”) to certain eligible U.S.-based associates aged 55 or above with at least 10 years of service.

During the three and nine months ended March 31, 2019, the Company recorded $ 7.8 million and $ 35.9 million, respectively, of non-cash settlement charges and special termination benefits.

The effective tax rate for the three months ended March 31, 2020 and 2019 was 23.8 % and 23.4 %, respectively.

The increase is primarily due to tax credits related to research and development activities in the three months ended March 31, 2019 and foreign withholding taxes on future distributions and an increase in reserves for uncertain tax positions in the three months ended March 31, 2020, partially offset by the benefits of a foreign tax law change and a reduction in the operating tax rate due to the mix between domestic and foreign earnings in the three months ended March 31, 2020.

The effective tax rate for the nine months ended March 31, 2020 and 2019 was 22.5 % and 23.4 %, respectively.

The decrease in the effective tax rate is primarily due to the release of a valuation allowance related to foreign tax credit carryforwards, a reduction in the operating tax rate due to the mix between domestic and foreign earnings and the benefit of a foreign tax law change partially offset by foreign withholding taxes on future distributions.

Settlement charges and special termination benefits 2.9 ( 5.1 )

Net pension income $ ( 11.1 ) $ ( 2.7 )

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.

Commitments and Contingencies

In June 2018, a potential class action complaint was filed against ADP in the Circuit Court of Cook County, Illinois.

The complaint asserts that ADP violated the Illinois Biometric Privacy Act, was negligent and unjustly enriched itself in connection with its collection, use and storage of biometric data of employees of its clients who are residents of Illinois in connection with certain services provided by ADP to clients in Illinois.

The complaint seeks statutory and other unspecified monetary damages, injunctive relief and attorney’s fees.

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.

All of 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.

In June 2020, the Company reached a settlement of all outstanding claims against ADP for $ 25.0 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.

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Three Months Ended

March 31, 2020

September 30, 2020

Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total

Balance at December 31, 2019 $ 63.9 $ 1,253.7 $ 17,987.6 $ ( 13,709.6 ) $ ( 231.2 ) $ 5,364.4

Balance at June 30, 2020 $ 63.9 $ 1,333.8 $ 18,436.3 $ ( 14,067.0 ) $ ( 14.8 ) $ 5,752.2

Net earnings — — 602.1 — — 602.1

2 unchanged sentences

Issuances relating to stock compensation plans — ( 20.5 ) — 65.3 — 44.8

Treasury stock acquired ( 2.5 shares repurchased)

Treasury stock acquired ( 1.7 million shares repurchased)

— — — ( 262.3 ) — ( 262.3 )

1 unchanged sentence

— — ( 393.7 ) — — ( 393.7 )

Balance at March 31, 2020 $ 63.9 $ 1,315.1 $ 18,416.5 $ ( 14,070.4 ) $ ( 234.4 ) $ 5,490.7

Balance at September 30, 2020 $ 63.9 $ 1,348.4 $ 18,644.7 $ ( 14,264.0 ) $ 15.9 $ 5,808.9

Three Months Ended

March 31, 2019

Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total

Balance at December 31, 2018 $ 63.9 $ 1,076.1 $ 16,959.1 $ ( 12,720.2 ) $ ( 615.0 ) $ 4,763.9

Net earnings — — 753.7 — — 753.7

Other comprehensive income — — — — 203.1 203.1

Stock-based compensation expense — 35.8 — — — 35.8

Issuances relating to stock compensation plans — 28.3 — 33.6 — 61.9

Treasury stock acquired ( 1.6 shares repurchased)

— — — ( 228.0 ) — ( 228.0 )

Dividends declared ($ 0.79 per share)

— — ( 344.2 ) — — ( 344.2 )

Balance at March 31, 2019 $ 63.9 $ 1,140.2 $ 17,368.6 $ ( 12,914.6 ) $ ( 411.9 ) $ 5,246.2

Nine Months Ended

March 31, 2020

September 30, 2019

Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total

4 unchanged sentences

Issuances relating to stock compensation plans — ( 5.5 ) — 70.5 — 65.0

Treasury stock acquired ( 6.2 shares repurchased)

Treasury stock acquired ( 1.9 million shares repurchased)

— — — ( 392.6 ) — ( 392.6 )

2 unchanged sentences

Other — — ( 6.8 ) — — ( 6.8 )

Balance at March 31, 2020 $ 63.9 $ 1,315.1 $ 18,416.5 $ ( 14,070.4 ) $ ( 234.4 ) $ 5,490.7

Nine Months Ended

March 31, 2019

Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total

Balance at June 30, 2018 $ 63.9 $ 1,014.8 $ 16,546.6 $ ( 12,209.6 ) $ ( 679.8 ) $ 4,735.9

Net earnings — — 1,817.4 — — 1,817.4

Other comprehensive income — — — — 267.9 267.9

Stock-based compensation expense — 105.4 — — — 105.4

Issuances relating to stock compensation plans — 20.0 — 117.1 — 137.1

Treasury stock acquired ( 5.4 shares repurchased)

— — — ( 822.1 ) — ( 822.1 )

Dividends declared ($ 2.27 per share)

— — ( 995.4 ) — — ( 995.4 )

Balance at March 31, 2019 $ 63.9 $ 1,140.2 $ 17,368.6 $ ( 12,914.6 ) $ ( 411.9 ) $ 5,246.2

Balance at September 30, 2019 $ 63.9 $ 1,213.7 $ 17,729.6 $ ( 13,412.6 ) $ ( 233.9 ) $ 5,360.7

Reclassifications out of Accumulated Other Comprehensive Income (“AOCI”)

1 unchanged sentence

Three Months Ended

March 31, 2020

Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive Loss

Balance at December 31, 2019 $ ( 283.8 ) $ 264.6 $ 0.5 $ ( 212.5 ) $ ( 231.2 )

Other comprehensive (loss)/income before reclassification adjustments ( 68.4 ) 139.3 ( 38.2 ) — 32.7

Tax effect — ( 32.2 ) 9.5 — ( 22.7 )

Reclassification adjustments to

net earnings — ( 2.5 ) (A) — ( 15.0 ) (B) ( 17.5 )

Tax effect — 0.6 — 3.7 4.3

Balance at March 31, 2020 $ ( 352.2 ) $ 369.8 $ ( 28.2 ) $ ( 223.8 ) $ ( 234.4 )

Three Months Ended

March 31, 2019

Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Pension Liability Accumulated Other Comprehensive Loss

Balance at December 31, 2018 $ ( 274.6 ) $ ( 181.5 ) $ ( 158.9 ) $ ( 615.0 )

Other comprehensive (loss)/income before reclassification adjustments ( 2.3 ) 259.0 — 256.7

Tax effect — ( 58.0 ) — ( 58.0 )

Reclassification adjustments to net earnings — ( 0.1 ) (A) 6.1 (B) 6.0

Tax effect — — ( 1.6 ) ( 1.6 )

Balance at March 31, 2019 $ ( 276.9 ) $ 19.4 $ ( 154.4 ) $ ( 411.9 )

Nine Months Ended

March 31, 2020

Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive Loss

September 30, 2020

Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive (Loss) /Income

Balance at June 30, 2020 $ ( 322.2 ) $ 680.4 $ ( 30.3 ) $ ( 342.7 ) $ ( 14.8 )

1 unchanged sentence

Tax effect — 5.5 0.8 — 6.3

Reclassification adjustments to net earnings — ( 11.9 ) (A) — ( 14.8 ) (B) ( 26.7 )

Reclassification adjustments to net earnings — ( 0.3 ) (A) 0.6 (C) 2.5 (B) 2.8

Tax effect — 0.1 — ( 1.0 ) ( 0.9 )

Balance at March 31, 2020 $ ( 352.2 ) $ 369.8 $ ( 28.2 ) $ ( 223.8 ) $ ( 234.4 )

Nine Months Ended

March 31, 2019

Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Pension Liability Accumulated Other Comprehensive Loss

Balance at September 30, 2020 $ ( 271.8 ) $ 661.1 $ ( 32.2 ) $ ( 341.2 ) $ 15.9

Three Months Ended

September 30, 2019

Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Pension Liability Accumulated Other Comprehensive (Loss) /Income

Balance at June 30, 2019 $ ( 269.2 ) $ 224.6 $ ( 212.7 ) $ ( 257.3 )

3 unchanged sentences

Tax effect — 0.5 0.5 1.0

Balance at March 31, 2019 $ ( 276.9 ) $ 19.4 $ ( 154.4 ) $ ( 411.9 )

(A) Reclassification adjustments out of AOCI are included within Other income, net, on the Statements of Consolidated Earnings.

(B) Reclassification adjustments out of AOCI are included in net pension expense (see Note 11).

The three and nine months ended March 31, 2020, include $ 17.0 million of prior service credits which were recognized as a component of net pension expense as a result of the US pension plan freeze.

Balance at September 30, 2019 $ ( 318.1 ) $ 298.1 $ ( 213.9 ) $ ( 233.9 )

(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.

Interim Financial Data by Segment

1 unchanged sentence

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, non-recurring gains and losses, the elimination of intercompany transactions, and interest expense.

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.

Beginning in the first quarter of fiscal 2020, 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.

In addition, the segment results in the table below reflect the impact of the revision to PEO revenues for comparability.

Refer to Note 1 to our Consolidated Financial Statements for more information on this revision.

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.

Segment Results:

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Three Months Ended

September 30,

Employer Services $ 2,376.8 $ 2,441.4

3 unchanged sentences

Earnings before Income Taxes

Three Months Ended Nine Months Ended

March 31, March 31,

2020 2019 2020 2019

Three Months Ended

September 30,

Employer Services $ 689.3 $ 679.4

2 unchanged sentences

$ 765.2 $ 739.1

Subsequent Events

In April 2020, the Company made a decision to sell certain available-for-sale securities in the funds held for clients as the Company anticipates client fund obligations will decline due to reduction in employment levels from a slowdown in the economy as a result of the coronavirus ("COVID-19") pandemic.

To maintain the size of the funds held for clients in line with client fund obligations, the Company will reduce its holdings of available-for-sale securities in the funds held for clients.

As of May 1, 2020, the Company sold approximately $ 1.3 billion of its available-for-sale securities, resulting in a net realized gain of $ 0.7 million.

The Company continues to evaluate the impact of COVID-19 on its operations and financial condition through the filing of this Form 10-Q and has determined there are no required updates to our disclosures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements