Item 1. Financial Statements
Item 1. Financial Statements
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Earnings
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
REVENUES:
Revenues, other than interest on funds held
for clients and PEO revenues $ 2,405.2 $ 2,398.4 $ 4,674.9 $ 4,704.7
Interest on funds held for clients 105.4 137.7 211.9 271.5
PEO revenues (A) 1,185.1 1,133.4 2,279.7 2,189.0
TOTAL REVENUES 3,695.7 3,669.5 7,166.5 7,165.2
EXPENSES:
Costs of revenues:
Operating expenses 1,847.8 1,836.0 3,610.0 3,623.6
Systems development and programming costs 174.5 168.7 343.2 336.9
Depreciation and amortization 100.1 89.4 203.6 178.3
TOTAL COSTS OF REVENUES 2,122.4 2,094.1 4,156.8 4,138.8
Selling, general, and administrative expenses 755.8 754.3 1,436.9 1,480.9
Interest expense 13.9 31.6 29.0 71.5
TOTAL EXPENSES 2,892.1 2,880.0 5,622.7 5,691.2
Other (income)/expense, net ( 29.0 ) ( 46.0 ) ( 54.0 ) ( 100.6 )
EARNINGS BEFORE INCOME TAXES 832.6 835.5 1,597.8 1,574.6
Provision for income taxes 185.1 183.9 348.2 340.6
NET EARNINGS $ 647.5 $ 651.6 $ 1,249.6 $ 1,234.0
BASIC EARNINGS PER SHARE $ 1.51 $ 1.51 $ 2.92 $ 2.86
DILUTED EARNINGS PER SHARE $ 1.51 $ 1.50 $ 2.91 $ 2.84
Basic weighted average shares outstanding 427.4 431.5 428.0 432.1
Diluted weighted average shares outstanding 429.0 433.3 429.5 434.3
(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 13,349.1 million and $ 12,371.6 million for the three months ended December 31, 2020 and 2019, respectively, and $ 24,364.9 million and $ 22,882.2 million for the six months ended December 31, 2020 and 2019, respectively.
See notes to the Consolidated Financial Statements.
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Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Comprehensive Income
(In millions)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Net earnings $ 647.5 $ 651.6 $ 1,249.6 $ 1,234.0
Other comprehensive income/(loss):
Currency translation adjustments 61.9 34.3 112.3 ( 14.6 )
Unrealized net (losses)/gains on available-for-sale securities ( 44.1 ) ( 35.5 ) ( 68.7 ) 60.6
Tax effect 10.0 7.5 15.5 ( 13.3 )
Reclassification of net (gains)/losses on available-for-sale securities to net earnings ( 7.7 ) ( 7.1 ) ( 8.0 ) ( 9.4 )
Tax effect 1.7 1.6 1.8 2.1
Unrealized (losses)/gains on cash flow hedging activities — 0.7 ( 3.3 ) 0.7
Tax effect — ( 0.2 ) 0.8 ( 0.2 )
Amortization of unrealized losses on cash flow hedging activities 1.1 — 1.7 —
Tax effect ( 0.4 ) — ( 0.4 ) —
Reclassification of pension liability adjustment to net earnings 2.5 1.9 5.0 0.2
Tax effect ( 0.6 ) ( 0.5 ) ( 1.6 ) —
Other comprehensive income, net of tax 24.4 2.7 55.1 26.1
Comprehensive income $ 671.9 $ 654.3 $ 1,304.7 $ 1,260.1
See notes to the Consolidated Financial Statements.
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Automatic Data Processing, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
December 31, June 30,
2020 2020
Assets
Current assets:
Cash and cash equivalents $ 1,602.2 $ 1,908.5
Accounts receivable, net of allowance for doubtful accounts of $ 86.3 and $ 92.5 , respectively
2,509.8 2,441.3
Other current assets 684.1 506.2
Total current assets before funds held for clients 4,796.1 4,856.0
Funds held for clients 36,866.2 26,708.1
Total current assets 41,662.3 31,564.1
Long-term receivables, net of allowance for doubtful accounts of $ 0.6 and $ 0.5 , respectively
15.3 18.6
Property, plant and equipment, net 692.7 703.9
Operating lease right-of-use asset 501.1 493.7
Deferred contract costs 2,417.2 2,401.6
Other assets 483.5 458.4
Goodwill 2,346.6 2,309.4
Intangible assets, net 1,207.2 1,215.8
Total assets $ 49,325.9 $ 39,165.5
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 113.9 $ 102.0
Accrued expenses and other current liabilities 1,778.1 1,980.7
Accrued payroll and payroll-related expenses 587.4 557.0
Dividends payable 394.4 387.3
Short-term deferred revenues 207.7 212.5
Obligations under reverse repurchase agreements (A) — 13.6
Short-term debt — 1,001.8
Income taxes payable 28.9 40.1
Total current liabilities before client funds obligations 3,110.4 4,295.0
Client funds obligations 36,066.1 25,831.6
Total current liabilities 39,176.5 30,126.6
Long-term debt 1,994.1 1,002.8
Operating lease liabilities 357.4 344.4
Other liabilities 812.5 837.0
Deferred income taxes 711.5 731.9
Long-term deferred revenues 373.9 370.6
Total liabilities 43,425.9 33,413.3
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stoc k, $ 1.00 par value: authorized, 0.3 shares; issued, no ne
— —
Common stock, $ 0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at December 31, 2020 and June 30, 2020;
outstanding, 428.1 and 429.9 shares at December 31, 2020 and June 30, 2020, respectively
63.9 63.9
Capital in excess of par value 1,407.6 1,333.8
Retained earnings 18,893.6 18,436.3
Treasury stock - at cost: 210.6 and 208.9 shares at December 31, 2020 and June 30, 2020, respectively
( 14,505.4 ) ( 14,067.0 )
Accumulated other comprehensive income (loss) 40.3 ( 14.8 )
Total stockholders’ equity 5,900.0 5,752.2
Total liabilities and stockholders’ equity $ 49,325.9 $ 39,165.5
(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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A utomatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Cash Flows
(In millions)
(Unaudited)
Six Months Ended
December 31,
2020 2019
Cash Flows from Operating Activities:
Net earnings $ 1,249.6 $ 1,234.0
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Depreciation and amortization 257.8 234.9
Amortization of deferred contract costs 464.9 456.0
Deferred income taxes 1.3 44.1
Stock-based compensation expense 80.9 73.3
Net pension income ( 22.0 ) ( 0.4 )
Net amortization of premiums and accretion of discounts on available-for-sale securities 28.7 26.3
Impairment of assets 5.0 —
Gain on sale of assets ( 1.8 ) ( 2.1 )
Other 2.4 6.5
Changes in operating assets and liabilities:
Increase in accounts receivable ( 86.5 ) ( 198.8 )
Increase in other assets ( 643.3 ) ( 605.4 )
Increase in accounts payable 10.2 12.3
Decrease in accrued expenses and other liabilities ( 158.9 ) ( 149.8 )
Net cash flows provided by operating activities 1,188.3 1,130.9
Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities ( 3,554.8 ) ( 2,875.3 )
Proceeds from the sales and maturities of corporate and client funds marketable securities 2,832.5 2,995.2
Capital expenditures ( 81.0 ) ( 100.7 )
Additions to intangibles ( 148.1 ) ( 167.7 )
Proceeds from sale of property, plant, and equipment and other assets 1.8 23.6
Net cash flows used in investing activities ( 949.6 ) ( 124.9 )
Cash Flows from Financing Activities:
Net increase in client funds obligations 10,036.4 7,093.7
Payments of debt ( 1,001.1 ) ( 1.1 )
Proceeds from the issuance of debt 991.1 —
Settlement of cash flow hedges ( 43.6 ) —
Repurchases of common stock ( 475.1 ) ( 615.1 )
Net proceeds from stock purchase plan and stock-based compensation plans 39.1 ( 4.4 )
Dividends paid ( 781.7 ) ( 686.0 )
Net payments related to reverse repurchase agreements ( 13.6 ) ( 262.0 )
Net cash flows provided by financing activities 8,751.5 5,525.1
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents 84.7 ( 12.2 )
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents 9,074.9 6,518.9
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 7,053.6 6,796.2
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $ 16,128.5 $ 13,315.1
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents $ 1,602.2 $ 1,500.4
Restricted cash and restricted cash equivalents included in funds held for clients (A) 14,526.3 11,814.7
Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 16,128.5 $ 13,315.1
Supplemental disclosures of cash flow information:
Cash paid for interest $ 28.1 $ 70.6
Cash paid for income taxes, net of income tax refunds $ 362.7 $ 350.4
(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.
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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, 2020 (“fiscal 2020”).
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
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.
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Recently Issued Accounting Pronouncements
The following table summarizes recent ASU's issued by the Financial Accounting Standards Board (“FASB”) which have been assessed and are applicable to the Company:
Standard Description Effective Date Effect on Financial Statements or Other Significant Matters
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. 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. July 1, 2021
(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.
Note 3. Revenue
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.
The following tables provide details of revenue by our strategic pillars, and include a reconciliation to the Company’s reportable segments:
Three Months Ended Six Months Ended
December 31, December 31,
Types of Revenues 2020 2019 2020 2019
HCM $ 1,624.8 $ 1,647.9 $ 3,155.4 $ 3,216.5
HRO, excluding PEO zero-margin benefits pass-throughs 668.7 650.1 1,251.1 1,241.2
PEO zero-margin benefits pass-throughs 765.9 722.4 1,507.0 1,421.5
Global 530.9 511.4 1,041.1 1,014.5
Interest on funds held for clients 105.4 137.7 211.9 271.5
Total Revenues $ 3,695.7 $ 3,669.5 $ 7,166.5 $ 7,165.2
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Reconciliation of disaggregated revenue to our reportable segments for the three months ended December 31, 2020:
Types of Revenues Employer Services PEO Other Total
HCM $ 1,625.2 $ — $ ( 0.4 ) $ 1,624.8
HRO, excluding PEO zero-margin benefits pass-throughs 250.1 419.2 ( 0.6 ) 668.7
PEO zero-margin benefits pass-throughs — 765.9 — 765.9
Global 530.9 — — 530.9
Interest on funds held for clients 104.4 1.0 — 105.4
Total Segment Revenues $ 2,510.6 $ 1,186.1 $ ( 1.0 ) $ 3,695.7
Reconciliation of disaggregated revenue to our reportable segments for the three months ended December 31, 2019:
Types of Revenues Employer Services PEO Other Total
HCM $ 1,649.8 $ — $ ( 1.9 ) $ 1,647.9
HRO, excluding PEO zero-margin benefits pass-throughs 239.9 411.0 ( 0.8 ) 650.1
PEO zero-margin benefits pass-throughs — 722.4 — 722.4
Global 511.4 — — 511.4
Interest on funds held for clients 136.4 1.3 — 137.7
Total Segment Revenues $ 2,537.5 $ 1,134.7 $ ( 2.7 ) $ 3,669.5
Reconciliation of disaggregated revenue to our reportable segments for the six months ended December 31, 2020:
Types of Revenues Employer Services PEO Other Total
HCM $ 3,157.4 $ — $ ( 2.0 ) $ 3,155.4
HRO, excluding PEO zero-margin benefits pass-throughs 479.3 772.7 ( 0.9 ) 1,251.1
PEO zero-margin benefits pass-throughs — 1,507.0 — 1,507.0
Global 1,041.1 — — 1,041.1
Interest on funds held for clients 209.6 2.3 — 211.9
Total Segment Revenues $ 4,887.4 $ 2,282.0 $ ( 2.9 ) $ 7,166.5
Reconciliation of disaggregated revenue to our reportable segments for the six months ended December 31, 2019:
Types of Revenues Employer Services PEO Other Total
HCM $ 3,219.8 $ — $ ( 3.3 ) $ 3,216.5
HRO, excluding PEO zero-margin benefits pass-throughs 475.6 767.5 ( 1.9 ) 1,241.2
PEO zero-margin benefits pass-throughs — 1,421.5 — 1,421.5
Global 1,014.5 — — 1,014.5
Interest on funds held for clients 269.0 2.5 — 271.5
Total Segment Revenues $ 4,978.9 $ 2,191.5 $ ( 5.2 ) $ 7,165.2
Contract Balances
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.
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Changes in deferred revenue related to set up fees for the six months ended December 31, 2020 were as follows:
Contract Liability
Contract liability, July 1, 2020 $ 522.7
Recognition of revenue included in beginning of year contract liability ( 85.8 )
Contract liability, net of revenue recognized on contracts during the period 64.1
Currency translation adjustments 20.6
Contract liability, December 31, 2020 $ 521.6
Note 4. Earnings per Share (“EPS”)
Basic Effect of Employee Stock Option Shares Effect of
Employee
Restricted
Stock
Shares Diluted
Three Months Ended December 31, 2020
Net earnings $ 647.5 $ 647.5
Weighted average shares (in millions) 427.4 0.7 0.9 429.0
EPS $ 1.51 $ 1.51
Three Months Ended December 31, 2019
Net earnings $ 651.6 $ 651.6
Weighted average shares (in millions) 431.5 1.1 0.7 433.3
EPS $ 1.51 $ 1.50
Six Months Ended December 31, 2020
Net earnings $ 1,249.6 $ 1,249.6
Weighted average shares (in millions) 428.0 0.7 0.8 429.5
EPS $ 2.92 $ 2.91
Six Months Ended December 31, 2019
Net earnings $ 1,234.0 $ 1,234.0
Weighted average shares (in millions) 432.1 1.1 1.1 434.3
EPS $ 2.86 $ 2.84
Options to purchase 1.2 million and 1.3 million shares of common stock for the three months ended December 31, 2020 and 2019, respectively, and 1.8 million and 1.0 million shares of common stock for the six months ended December 31, 2020 and 2019, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
Note 5. Other (Income)/Expense, Net
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Interest income on corporate funds $ ( 10.4 ) $ ( 25.7 ) $ ( 24.3 ) $ ( 58.0 )
Realized (gains) / losses on available-for-sale securities, net ( 7.7 ) ( 7.1 ) ( 8.0 ) ( 9.4 )
Impairment of assets 2.2 — 5.0 —
Gain on sale of assets ( 1.6 ) ( 0.2 ) ( 1.8 ) ( 2.1 )
Non-service components of pension income, net (see Note 11) ( 11.5 ) ( 13.0 ) ( 24.9 ) ( 31.1 )
Other (income)/expense, net $ ( 29.0 ) $ ( 46.0 ) $ ( 54.0 ) $ ( 100.6 )
Other (income)/expense, net, decreased for the three and six months ended December 31, 2020 primarily as a result of a decrease in interest income on corporate funds due to lower interest rates earned.
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Note 6. Corporate Investments and Funds Held for Clients
Corporate investments and funds held for clients at December 31, 2020 and June 30, 2020 were as follows:
December 31, 2020
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Market Value (A)
Type of issue:
Money market securities, cash and other cash equivalents $ 16,128.5 $ — $ — $ 16,128.5
Available-for-sale securities:
Corporate bonds 10,266.6 439.7 ( 0.9 ) 10,705.4
Asset-backed securities 2,741.5 87.3 — 2,828.8
U.S. Treasury securities 3,609.3 93.8 ( 0.1 ) 3,703.0
U.S. government agency securities 1,403.4 30.4 ( 0.9 ) 1,432.9
Canadian government obligations and Canadian government agency obligations
1,084.9 21.8 ( 0.1 ) 1,106.6
Commercial mortgage-backed securities 805.8 54.6 — 860.4
Canadian provincial bonds 713.9 34.5 ( 0.1 ) 748.3
Other securities 925.0 40.2 ( 0.1 ) 965.1
Total available-for-sale securities 21,550.4 802.3 ( 2.2 ) 22,350.5
Total corporate investments and funds held for clients $ 37,678.9 $ 802.3 $ ( 2.2 ) $ 38,479.0
(A) Included within available-for-sale securities are corporate investments with fair values of $ 10.6 million and funds held for clients with fair values of $ 22,339.9 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.
June 30, 2020
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Market Value (B)
Type of issue:
Money market securities, cash and other cash equivalents $ 7,053.6 $ — $ — $ 7,053.6
Available-for-sale securities:
Corporate bonds 9,188.7 473.4 — 9,662.1
Asset-backed securities 3,274.6 96.0 ( 0.5 ) 3,370.1
U.S. Treasury securities 3,580.6 120.8 — 3,701.4
U.S. government agency securities 1,128.2 35.6 — 1,163.8
Canadian government obligations and Canadian government agency obligations
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
Other securities 1,018.1 41.1 ( 0.2 ) 1,059.0
Total available-for-sale securities 20,699.8 877.5 ( 0.7 ) 21,576.6
Total corporate investments and funds held for clients $ 27,753.4 $ 877.5 $ ( 0.7 ) $ 28,630.2
(B) Included within available-for-sale securities are corporate investments with fair values of $ 13.6 million and funds held for clients with fair values of $ 21,563.0 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.
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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 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 December 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 December 31, 2020, are as follows:
December 31, 2020
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 $ ( 0.9 ) $ 379.3 $ — $ — $ ( 0.9 ) $ 379.3
Asset-backed securities — 3.2 — — — 3.2
U.S. Treasury securities ( 0.1 ) 14.1 — — ( 0.1 ) 14.1
U.S. government agency securities ( 0.9 ) 348.6 — — ( 0.9 ) 348.6
Canadian government obligations and Canadian government agency obligations
( 0.1 ) 68.1 — — ( 0.1 ) 68.1
Commercial mortgage-backed securities — — — 1.4 — 1.4
Canadian provincial bonds ( 0.1 ) 45.7 — — ( 0.1 ) 45.7
Other securities ( 0.1 ) 28.2 — — ( 0.1 ) 28.2
$ ( 2.2 ) $ 887.2 $ — $ 1.4 $ ( 2.2 ) $ 888.6
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:
June 30, 2020
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 $ — $ — $ — $ — $ — $ —
Asset-backed securities ( 0.5 ) 43.9 — — ( 0.5 ) 43.9
U.S. Treasury securities — 2.0 — — — 2.0
U.S. government agency securities — — — — — —
Canadian government obligations and Canadian government agency obligations
— — — — — —
Commercial mortgage-backed securities — — — 1.5 — 1.5
Canadian provincial bonds — — — — — —
Other securities ( 0.2 ) 17.1 — — ( 0.2 ) 17.1
$ ( 0.7 ) $ 63.0 $ — $ 1.5 $ ( 0.7 ) $ 64.5
At December 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 ran g ing from January 2021 through October 2030.
At December 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 $ 1,478.7 million, $ 965.8 million, $ 302.8 million, and $ 80.8 million, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All collateral on such asset-backed securities has performed as expected through December 31, 2020.
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At December 31, 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 $ 679.4 million and $ 584.7 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 January 2021 through November 2030.
At December 31, 2020, U.S government agency commercial mortgage-backed securities of $ 860.4 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.
At December 31, 2020, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above with fair values of $ 560.7 million and AA-rated United Kingdom Gilt securities of $ 208.3 million.
Classification of corporate investments on the Consolidated Balance Sheets is as follows:
December 31, June 30,
2020 2020
Corporate investments:
Cash and cash equivalents $ 1,602.2 $ 1,908.5
Short-term marketable securities (a) 10.6 —
Long-term marketable securities (b) — 13.6
Total corporate investments $ 1,612.8 $ 1,922.1
(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:
December 31, June 30,
2020 2020
Funds held for clients:
Restricted cash and cash equivalents held to satisfy client funds obligations $ 14,526.3 $ 5,145.1
Restricted short-term marketable securities held to satisfy client funds obligations 4,768.3 5,541.2
Restricted long-term marketable securities held to satisfy client funds obligations 17,571.6 16,021.8
Total funds held for clients $ 36,866.2 $ 26,708.1
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 one year of the balance sheet date. The Company has reported client funds obligations as a current liability on the Consolidated Balance Shee ts totaling $ 36,066.1 million and $ 25,831.6 million at December 31, 2020 and June 30, 2020, respectively. The Company h as 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 December 31, 2020 and June 30, 2020 , $ 33,706.4 million an d $ 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.
The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash and cash equivalents related to client funds investments with original maturities of ninety days or less , within the beginning and ending balances of cash, cash equivalents, restricted cash, and restricted cash equivalents. 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
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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 December 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 December 31, 2020.
Expected maturities of available-for-sale securities at December 31, 2020 are as follows:
One year or less $ 4,778.9
One year to two years 4,561.0
Two years to three years 3,524.7
Three years to four years 2,670.6
After four years 6,815.3
Total available-for-sale securities $ 22,350.5
Note 7. Leases
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 difference between total ROU assets and total lease liabilities are primarily attributable to pre-payments of our obligations and the recognition of various lease incentives.
The Company has entered into operating lease agreements for facilities and equipment. The Company's leases have remaining lease terms of up to approximately eleven years .
The components of operating lease expense were as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Operating lease cost $ 40.0 $ 42.3 $ 79.1 $ 86.5
Short-term lease cost 0.3 1.2 0.7 3.9
Variable lease cost 2.2 0.7 4.3 2.0
Total operating lease cost $ 42.5 $ 44.2 $ 84.1 $ 92.4
The following table provides supplemental cash flow information related to the Company's leases:
Six Months Ended
December 31,
2020 2019
Cash paid for operating lease liabilities $ 77.0 $ 75.8
Operating lease ROU assets obtained in exchange for new operating lease liabilities $ 72.0 $ 17.4
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Other information related to our operating lease liabilities is as follows:
December 31, June 30,
2020 2020
Weighted-average remaining lease term (in years) 6 6
Weighted-average discount rate 2.1 % 2.3 %
Current operating lease liability $ 97.4 $ 95.5
As of December 31, 2020, maturities of operating lease liabilities are as follows:
Six months ending June 30, 2021 $ 52.9
Twelve months ending June 30, 2022 100.5
Twelve months ending June 30, 2023 87.8
Twelve months ending June 30, 2024 65.0
Twelve months ending June 30, 2025 48.5
Thereafter 130.0
Total undiscounted lease obligations 484.7
Less: Imputed interest ( 29.9 )
Net lease obligations $ 454.8
Note 8. Goodwill and Intangible Assets, net
Changes in goodwill for the six months ended December 31, 2020 are as follows:
Employer
Services PEO
Services Total
Balance at June 30, 2020 $ 2,304.6 $ 4.8 $ 2,309.4
Additions and other adjustments — — —
Currency translation adjustments 37.2 — 37.2
Balance at December 31, 2020 $ 2,341.8 $ 4.8 $ 2,346.6
Components of intangible assets, net, are as follows:
December 31, June 30,
2020 2020
Intangible assets:
Software and software licenses $ 2,831.3 $ 2,719.1
Customer contracts and lists 1,038.9 1,021.2
Other intangibles 239.2 239.2
4,109.4 3,979.5
Less accumulated amortization:
Software and software licenses ( 1,995.6 ) ( 1,912.0 )
Customer contracts and lists ( 680.8 ) ( 628.3 )
Other intangibles ( 225.8 ) ( 223.4 )
( 2,902.2 ) ( 2,763.7 )
Intangible assets, net $ 1,207.2 $ 1,215.8
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 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 $ 80.8 million and $ 69.7 million for the three months ended December 31, 2020 and 2019, respectively, and $ 165.0 million and $ 139.1 million for the six months ended December 31, 2020 and 2019, respectively.
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Estimated future amortization expenses of the Company's existing intangible assets are as follows:
Amount
Six months ending June 30, 2021 $ 157.0
Twelve months ending June 30, 2022 $ 270.2
Twelve months ending June 30, 2023 $ 224.9
Twelve months ending June 30, 2024 $ 176.7
Twelve months ending June 30, 2025 $ 122.8
Twelve months ending June 30, 2026 $ 72.6
Note 9. Short-term Financing
The Company has a $ 3.2 billion, 364 -day credit agreement that matures in June 2021 with a one year term-out option. The Company also has a $ 2.75 billion five year credit facility that matures in June 2024 that contains an accordion feature under which the aggregate commitment can be increased by $ 500 million, subject to the availability of additional commitments. In addition, the Company has a five year $ 3.75 billion credit facility maturing in June 2023 that also 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 LIBOR, the effective federal funds rate, or the prime rate, depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The Company had no borrowings through December 31, 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 $ 9.7 billion in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At December 31, 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 Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Average daily borrowings (in billions) $ 1.8 $ 3.5 $ 2.1 $ 3.7
Weighted average interest rates 0.1 % 1.7 % 0.1 % 2.0 %
Weighted average maturity (approximately in days) 1 day 2 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 December 31, 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 Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Average outstanding balances $ 83.2 $ 335.9 $ 117.8 $ 381.2
Weighted average interest rates 0.3 % 1.7 % 0.3 % 1.8 %
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Note 10. Debt
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.
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 1.25 %. The Company also redeemed $ 1.0 billion of senior notes bearing a fixed interest rate of 2.25 %. 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 December 31, 2020 and June 30, 2020, are as follows:
Debt instrument Effective Interest Rate December 31, 2020 June 30, 2020
Fixed-rate 2.250 % notes due September 15, 2020
2.37 % $ — $ 1,000.0
Fixed-rate 3.375 % notes due September 15, 2025
3.47 % 1,000.0 1,000.0
Fixed-rate 1.250 % notes due September 1, 2030
1.83 % 1,000.0 —
Other 7.6 8.4
2,007.6 2,008.4
Less: current portion (a) ( 1.4 ) ( 1,001.8 )
Less: unamortized discount and debt issuance costs ( 12.1 ) ( 3.8 )
Total long-term debt $ 1,994.1 $ 1,002.8
(a) - Current portion of long-term debt as of December 31, 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 December 31, 2020, the fair value of the Notes, based on Level 2 inputs, was $ 2,120.6 million. For a description of the fair value hierarchy and the Company's fair value methodologies, including the use of an independent third-party pricing service, see Note 1 “Summary of Significant Accounting Policies” in the Company's Annual Report on Form 10-K for fiscal 2020.
Note 11. Employee Benefit Plans
A. Stock-based Compensation Plans. Stock-based compensation consists of the following:
The Company's share-based compensation consists of stock options, time-based restricted stock, time-based restricted stock
units, performance-based restricted stock, and performance-based restricted stock units. The Company also offers an employee
stock purchase plan for eligible employees.
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 1.6 million and 1.8 million shares in the three months ended December 31, 2020 and 2019, respectively, and repurchased 3.2 million and 3.7 million shares in the six months ended December 31, 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.
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The following table represents pre-tax stock-based compensation expense for the three and six months ended December 31, 2020 and 2019, respectively:
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Operating expenses $ 4.8 $ 3.4 $ 8.4 $ 7.4
Selling, general and administrative expenses 35.6 28.0 60.9 56.3
System development and programming costs 6.7 4.8 11.6 9.6
Total stock-based compensation expense $ 47.1 $ 36.2 $ 80.9 $ 73.3
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 Annual Report on Form 10-K for fiscal 2020. See the Company's Annual Report on Form 10-K for fiscal 2020 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.
B. Pension Plans
The components of net pension income were as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Service cost – benefits earned during the period $ 1.2 $ 14.9 $ 2.4 $ 29.9
Interest cost on projected benefits 12.8 15.4 25.5 30.9
Expected return on plan assets ( 30.4 ) ( 29.5 ) ( 60.7 ) ( 59.0 )
Net amortization and deferral 2.5 1.5 5.0 2.9
Settlement charges and special termination benefits 2.9 — 5.8 ( 5.1 )
Net pension (income)/expense $ ( 11.0 ) $ 2.3 $ ( 22.0 ) $ ( 0.4 )
Note 12. Income Taxes
The effective tax rate for the three months ended December 31, 2020 and 2019 was 22.2 % and 22.0 %, respectively. The increase in the effective tax rate is primarily due to the benefit from a valuation allowance release related to foreign tax credit carryforwards in the three months ended December 31, 2019, partially offset by the benefits from a foreign tax election in the three months ended December 31, 2020.
The effective tax rate for the six months ended December 31, 2020 and 2019 was 21.8 % and 21.6 %, respectively. The increase in the effective tax rate is primarily due to the benefit from a valuation allowance release related to foreign tax credits carryforwards in the six months ended December 31, 2019 and a decrease in the excess tax benefit on stock-based compensation partially offset by favorable adjustments to prior year tax liabilities and the benefits from a foreign tax election in the six months ended December 31, 2020.
Note 13. Commitments 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 it for $ 25.0 million, subject to the court's final approval. The Company does not expect that any of the remaining cases against its 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
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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.
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. Stockholders' Equity
Changes in stockholders' equity by component are as follows:
Three Months Ended
December 31, 2020
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at September 30, 2020 $ 63.9 $ 1,348.4 $ 18,644.7 $ ( 14,264.0 ) $ 15.9 $ 5,808.9
Net earnings — — 647.5 — — 647.5
Other comprehensive income — — — — 24.4 24.4
Stock-based compensation expense — 40.6 — — — 40.6
Issuances relating to stock compensation plans — 18.6 — 17.7 — 36.3
Treasury stock acquired ( 1.6 million shares repurchased)
— — — ( 259.1 ) — ( 259.1 )
Dividends declared ($ 0.93 per share)
— — ( 398.6 ) — — ( 398.6 )
Balance at December 31, 2020 $ 63.9 $ 1,407.6 $ 18,893.6 $ ( 14,505.4 ) $ 40.3 $ 5,900.0
Three Months Ended
December 31, 2019
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at September 30, 2019 $ 63.9 $ 1,213.7 $ 17,729.6 $ ( 13,412.6 ) $ ( 233.9 ) $ 5,360.7
Net earnings — — 651.6 — — 651.6
Other comprehensive income — — — — 2.7 2.7
Stock-based compensation expense — 31.3 — — — 31.3
Issuances relating to stock compensation plans — 8.7 — 14.5 — 23.2
Treasury stock acquired ( 1.8 million shares repurchased)
— — — ( 311.5 ) — ( 311.5 )
Dividends declared ($ 0.91 per share)
— — ( 393.6 ) — — ( 393.6 )
Balance at December 31, 2019 $ 63.9 $ 1,253.7 $ 17,987.6 $ ( 13,709.6 ) $ ( 231.2 ) $ 5,364.4
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Six Months Ended
December 31, 2020
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at June 30, 2020 $ 63.9 $ 1,333.8 $ 18,436.3 $ ( 14,067.0 ) $ ( 14.8 ) $ 5,752.2
Net earnings — — 1,249.6 — — 1,249.6
Other comprehensive income — — — — 55.1 55.1
Stock-based compensation expense — 75.7 — — — 75.7
Issuances relating to stock compensation plans — ( 1.9 ) — 83.0 — 81.1
Treasury stock acquired ( 3.2 million shares repurchased)
— — — ( 521.4 ) — ( 521.4 )
Dividends declared ($ 1.84 per share)
— — ( 792.3 ) — — ( 792.3 )
Balance at December 31, 2020 $ 63.9 $ 1,407.6 $ 18,893.6 $ ( 14,505.4 ) $ 40.3 $ 5,900.0
Six Months Ended
December 31, 2019
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at June 30, 2019 $ 63.9 $ 1,183.2 $ 17,500.6 $ ( 13,090.5 ) $ ( 257.3 ) $ 5,399.9
Net earnings — — 1,234.0 — — 1,234.0
Other comprehensive income — — — — 26.1 26.1
Stock-based compensation expense — 67.3 — — — 67.3
Issuances relating to stock compensation plans — 3.2 — 84.9 — 88.1
Treasury stock acquired ( 3.7 million shares repurchased)
— — — ( 704.0 ) — ( 704.0 )
Dividends declared ($ 1.70 per share)
— — ( 740.2 ) — — ( 740.2 )
Other — — ( 6.8 ) — — ( 6.8 )
Balance at December 31, 2019 $ 63.9 $ 1,253.7 $ 17,987.6 $ ( 13,709.6 ) $ ( 231.2 ) $ 5,364.4
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Note 15. Reclassifications out of Accumulated Other Comprehensive Income (“AOCI”)
Changes in AOCI by component are as follows:
Three Months Ended
December 31, 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 September 30, 2020 $ ( 271.8 ) $ 661.1 $ ( 32.2 ) $ ( 341.2 ) $ 15.9
Other comprehensive (loss)/income before reclassification adjustments 61.9 ( 44.1 ) — — 17.8
Tax effect — 10.0 — — 10.0
Reclassification adjustments to net earnings — ( 7.7 ) (A) 1.1 (C) 2.5 (B) ( 4.1 )
Tax effect — 1.7 ( 0.4 ) ( 0.6 ) 0.7
Balance at December 31, 2020 $ ( 209.9 ) $ 621.0 $ ( 31.5 ) $ ( 339.3 ) $ 40.3
Three Months Ended
December 31, 2019
Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive (Loss) /Income
Balance at September 30, 2019 $ ( 318.1 ) $ 298.1 $ — $ ( 213.9 ) $ ( 233.9 )
Other comprehensive (loss)/income before reclassification adjustments 34.3 ( 35.5 ) 0.7 — ( 0.5 )
Tax effect — 7.5 ( 0.2 ) — 7.3
Reclassification adjustments to net earnings — ( 7.1 ) (A) — 1.9 (B) ( 5.2 )
Tax effect — 1.6 — ( 0.5 ) 1.1
Balance at December 31, 2019 $ ( 283.8 ) $ 264.6 $ 0.5 $ ( 212.5 ) $ ( 231.2 )
Six Months Ended
December 31, 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 )
Other comprehensive (loss)/income before reclassification adjustments 112.3 ( 68.7 ) ( 3.3 ) — 40.3
Tax effect — 15.5 0.8 — 16.3
Reclassification adjustments to net earnings — ( 8.0 ) (A) 1.7 (C) 5.0 (B) ( 1.3 )
Tax effect — 1.8 ( 0.4 ) ( 1.6 ) ( 0.2 )
Balance at December 31, 2020 $ ( 209.9 ) $ 621.0 $ ( 31.5 ) $ ( 339.3 ) $ 40.3
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Six Months Ended
December 31, 2019
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, 2019 $ ( 269.2 ) $ 224.6 $ — $ ( 212.7 ) $ ( 257.3 )
Other comprehensive (loss)/income before reclassification adjustments ( 14.6 ) 60.6 0.7 — 46.7
Tax effect — ( 13.3 ) ( 0.2 ) — ( 13.5 )
Reclassification adjustments to net earnings — ( 9.4 ) (A) — 0.2 (B) ( 9.2 )
Tax effect — 2.1 — — 2.1
Balance at December 31, 2019 $ ( 283.8 ) $ 264.6 $ 0.5 $ ( 212.5 ) $ ( 231.2 )
(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 ) .
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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 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.
Segment Results:
Revenues
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Employer Services $ 2,510.6 $ 2,537.5 $ 4,887.4 $ 4,978.9
PEO Services 1,186.1 1,134.7 2,282.0 2,191.5
Other ( 1.0 ) ( 2.7 ) ( 2.9 ) ( 5.2 )
$ 3,695.7 $ 3,669.5 $ 7,166.5 $ 7,165.2
Earnings before Income Taxes
Three Months Ended Six Months Ended
December 31, December 31,
2020 2019 2020 2019
Employer Services $ 758.6 $ 766.3 $ 1,447.8 $ 1,445.7
PEO Services 187.4 168.0 346.8 317.3
Other ( 113.4 ) ( 98.8 ) ( 196.8 ) ( 188.4 )
$ 832.6 $ 835.5 $ 1,597.8 $ 1,574.6
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.