What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-08-04 compared with 2020-08-05 · 144 added, 249 removed, 1060 unchanged (27% of the section changed)

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We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc.

and subsidiaries (the "Company") as of June 30, 2020 and 2019, and the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2020, and the related notes and the schedule listed in the Index at Item 15(a) 2 (collectively referred to as the “financial statements”).

and subsidiaries (the "Company") as of June 30, 2021 and 2020, and the related statements of consolidated earnings, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2021, and the related notes and the schedule listed in the Index at Item 15(a)2 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

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Given the limited historical data associated with the Company’s next-gen platform, significant management judgment was required to forecast future revenue and operating margin to estimate the fair value of the reporting unit.

In addition, there is inherent uncertainty related to the timing of economic recovery and this condition could impact the Company’s forecasts of future revenue and operating margin, and its selection of an appropriate weighted average cost of capital as of June 30, 2020, for the reporting unit.

In turn, a high degree of auditor judgment and an increased extent of audit effort were required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions, related to the forecasts of revenue and operating margin and selection of the weighted average cost of capital, including the involvement of our fair value specialists.

In turn, a high degree of auditor judgment and an increased extent of audit effort were required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of revenue and operating margin and the selection of the weighted average cost of capital, including the involvement of our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

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◦ Developing a range of independent estimates and compared to the weighted average cost of capital selected by management.

◦ Evaluating management’s selection of the company-specific risk premium by comparing to the revenue growth and operating margins of peer companies.

• We evaluated management’s ability to accurately forecast future revenue and operating margin by comparing actual results to management’s historical forecasts.

Due to the limited historical data for the next-gen platform, we evaluated the reasonableness of management’s revenue and operating margin forecasts by comparing the forecasts to (1) the historical operating results of the Company’s similar existing platforms, (2) the limited operating results to date of the next-gen platform, (3) internal communications to management and the board of directors, and (4) external communications made by management to analysts and investors.

• Given the inherent uncertainty related to the timing of economic recovery and the resulting adverse impacts associated with the COVID-19 outbreak on the reporting unit, we evaluated the reasonableness of management’s assumptions related to the severity of business disruption associated with the COVID-19 outbreak on the reporting unit and timing of economic recovery by:

◦ Comparing management’s analysis of the expected business disruption from the COVID-19 outbreak on the reporting unit to the business impacts observed since the outbreak during the Company’s fiscal year 2020.

◦ Comparing management’s analysis of the timing of economic recovery to external economic recovery and industry forecasts to evaluate contradictory evidence related to management’s assumptions regarding the expected impact of the COVID-19 business disruption and timing of recovery.

◦ Evaluating the impact of various alternative scenarios on the discounted cash flow and fair value.

Client Fund Obligations - Refer to Note 4 to the financial statements

Client Funds Obligations - Refer to Note 4 to the financial statements

Critical Audit Matter Description

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• We tested the effectiveness of general information technology controls over the applications relevant to the money movement reconciliation process.

• We tested the effectiveness of (1) management’s controls over the client funds obligation data reconciliation and (2) management’s control to reconcile the consolidated client funds obligations to the corresponding consolidated funds held for clients balance.

• We involved data specialists to (1) independently reperform management’s client funds obligation reconciliation and (2) perform data analyses to identify and evaluate recurring and new adjustments to the data extracts in the current period.

• We tested the effectiveness of (1) management’s controls over the client funds obligations data reconciliation and (2) management’s control to reconcile the consolidated client funds obligations to the corresponding consolidated funds held for clients balance.

• We involved data specialists to (1) independently reperform management’s client funds obligations reconciliation and (2) perform data analyses to identify and evaluate recurring and new adjustments to the data extracts in the current period.

• For a selection of client funds obligations transactions, we evaluated whether the funds were impounded prior to June 30, 2021, agreed the liability to the corresponding asset balance, and evaluated whether the funds were properly included or excluded from the client funds obligations.

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Tax effect 2.5 2.9 ( 0.3 )

Unrealized loss on cash flow hedging activities ( 40.3 ) — —

Unrealized (losses)/gains on cash flow hedging activities ( 3.3 ) ( 40.3 ) —

Tax effect 0.8 10.0 —

Amortization of unrealized losses on cash flow hedging activities 3.8 — —

Tax effect ( 0.9 ) — —

Pension net (losses)/gains arising during the year 281.5 ( 160.8 ) ( 84.7 )

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Cash and cash equivalents $ 2,575.2 $ 1,908.5

Short-term marketable securities — 10.5

Accounts receivable, net of allowance for doubtful accounts of $ 79.6 and $ 92.5 , respectively

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Common stock, $ 0.10 par value:

authorized, 1,000.0 shar es;

authorized, 1,000.0 shares;

issued, 638.7 shares at June 30, 2021 and June 30, 2020;

outstanding, 429.9 and 434.2 sh ares at June 30, 2020 and June 30, 2019, respectively

outstanding, 423.7 and 429.9 shares at June 30, 2021 and June 30, 2020, respectively

Capital in excess of par value 1,531.3 1,333.8

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( 15,386.8 ) ( 14,067.0 )

Accumulated other comprehensive loss ( 14.8 ) ( 257.3 )

Accumulated other comprehensive income (loss) 10.6 ( 14.8 )

Total stockholders’ equity 5,670.1 5,752.2

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(A) As of June 30, 2021, $ 23.5 million of long-term marketable securities have been pledged as collateral under the Company's reverse repurchase agreements.

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 (see Note 8).

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 8).

See notes to the Consolidated Financial Statements.

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Net earnings — — — 2,292.8 — —

Other comprehensive loss — — — — — ( 254.3 )

Other comprehensive income — — — — — 422.5

Stock-based compensation expense — — 144.2 — — —

Issuances relating to stock compensation plans — — 24.2 — 124.1 —

Treasury stock acquired ( 8.5 shares repurchased)

Treasury stock acquired ( 6.5 million shares repurchased)

— — — — ( 1,005.0 ) —

Other (A) — — — 42.3 — ( 42.3 )

Dividends ($ 3.06 per share)

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Issuances relating to stock compensation plans — — 32.8 — 112.9 —

Treasury stock acquired ( 6.5 shares repurchased)

Treasury stock acquired ( 6.2 million shares repurchased)

— — — — ( 1,089.4 ) —

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— — — ( 1,523.9 ) — —

Other — — — ( 6.9 ) — —

Balance at June 30, 2020 638.7 $ 63.9 $ 1,333.8 $ 18,436.3 $ ( 14,067.0 ) $ ( 14.8 )

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Issuances relating to stock compensation plans — — 41.2 — 111.4 —

Treasury stock acquired ( 6.2 shares repurchased)

Treasury stock acquired ( 8.2 million shares repurchased)

— — — — ( 1,431.2 ) —

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— — — ( 1,583.7 ) — —

Other — — — ( 6.9 ) — —

Balance at June 30, 2021 638.7 $ 63.9 $ 1,531.3 $ 19,451.1 $ ( 15,386.8 ) $ 10.6

(A) During fiscal 2018, the Company adopted ASU 2018-02 and reclassified stranded tax effects attributable to the Tax Cuts and Jobs Act (the "Act") from AOCI to retained earnings.

The fiscal 2018 Consolidated Balance Sheets reflect the reclassification out of accumulated other comprehensive (loss)/income into retained earnings.

See notes to the Consolidated Financial Statements.

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Other 35.2 65.4 43.9

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

Changes in operating assets and liabilities:

Increase in accounts receivable ( 339.8 ) ( 113.8 ) ( 473.9 )

Increase in other assets ( 1,029.4 ) ( 910.4 ) ( 987.2 )

Decrease in accounts payable ( 18.3 ) ( 10.7 ) ( 1.9 )

(Decrease)/Increase in accrued expenses and other liabilities ( 77.5 ) 266.0 110.5

Increase/(Decrease) in accounts payable 36.9 ( 18.3 ) ( 10.7 )

Increase/(Decrease) in accrued expenses and other liabilities 394.9 ( 77.5 ) 266.0

Net cash flows provided by operating activities 3,093.3 3,026.2 2,688.3

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Proceeds from the sale of property, plant, and equipment and other assets 18.8 29.4 7.9

Net cash flows provided by/(used in) investing activities 3,156.3 ( 2,197.7 ) ( 2,504.6 )

Net cash flows (used in)/provided by investing activities ( 3,515.0 ) 3,156.3 ( 2,197.7 )

Cash Flows from Financing Activities:

Net (decrease)/increase in client funds obligations ( 3,213.2 ) 1,696.0 340.4

Net increase /(decrease) in client funds obligations 8,336.2 ( 3,213.2 ) 1,696.0

Payments of debt ( 1,001.8 ) ( 2.2 ) ( 2.1 )

Proceeds from the issuance of debt 1,981.5 — —

Settlement of cash flow hedges ( 44.6 ) — —

Repurchases of common stock ( 1,372.3 ) ( 1,006.3 ) ( 937.7 )

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Dividends paid ( 1,575.5 ) ( 1,470.5 ) ( 1,293.0 )

Net (payments)/proceeds related to reverse repurchase agreements ( 248.4 ) 262.0 —

Net proceeds/(payments) related to reverse repurchase agreements 9.9 ( 248.4 ) 262.0

Other — — ( 5.8 )

Net cash flows used in financing activities ( 5,890.6 ) ( 207.7 ) ( 1,655.9 )

Net cash flows provided by/(used in) financing activities 6,437.5 ( 5,890.6 ) ( 207.7 )

Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents 73.8 ( 34.5 ) ( 28.8 )

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Basis of Preparation.

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.

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.

Intercompany balances and transactions have been eliminated in consolidation.

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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 4, “Corporate Investments and Funds Held for Clients.”

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 fiscal 2020, 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 fiscal 2019 and fiscal 2018 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:

June 30, 2019

As reported Revision As revised

PEO revenues $ 4,237.5 ( 65.0 ) $ 4,172.5

TOTAL REVENUES 14,175.2 ( 65.0 ) 14,110.2

Operating expenses 7,145.9 ( 65.0 ) 7,080.9

Total Expenses 11,280.7 ( 65.0 ) 11,215.7

EARNINGS BEFORE INCOME TAXES 3,005.6 — 3,005.6

Provision for income taxes 712.8 — 712.8

NET EARNINGS $ 2,292.8 — $ 2,292.8

June 30, 2018

As reported Revision As revised

PEO revenues $ 3,877.8 ( 53.5 ) $ 3,824.3

TOTAL REVENUES 13,327.7 ( 53.5 ) 13,274.2

Operating expenses 6,901.0 ( 53.5 ) 6,847.5

Total Expenses 10,873.0 ( 53.5 ) 10,819.5

EARNINGS BEFORE INCOME TAXES 2,282.6 — 2,282.6

Provision for income taxes 397.7 — 397.7

NET EARNINGS $ 1,884.9 — $ 1,884.9

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 Financial Data by Segment and Geographic Area disclosure.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenues, expenses, and other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto.

GAAP requires management to make estimates and

assumptions that affect the assets, liabilities, revenues, expenses, and other comprehensive income that are reported in the

Consolidated Financial Statements and footnotes thereto.

Actual results may differ from those estimates.

Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's presentation.

Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's

presentation.

Description of Business.

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Employer Services and Professional Employer Organization (“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, legal settlements, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and interest expense.

Revenue Recognition.

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With respect to the payroll and payroll taxes, the worksite employer is primarily responsible for providing the service and has discretion in establishing wages.

The fees collected from the worksite employers for benefits (i.e.

PEO zero-margin benefits pass-throughs), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company does retain risk and acts as a principal with respect to this aspect of the arrangement.

The fees collected from the worksite employers for benefits (i.e., PEO zero-margin benefits pass-throughs), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company does retain risk and acts as a principal with respect to this aspect of the arrangement.

With respect to these fees, the Company is primarily responsible for fulfilling the service and has discretion in establishing price.

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The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract ii) are expected to generate resources that will be used to satisfy the Company's performance obligations under the contract and iii) are expected to be recovered through revenue generated under the contract.

Costs incurred to implement clients on our solutions (e.g.

direct labor) are capitalized and amortized on a straight-line basis over the expected client relationship period if the Company expects to recover those costs.

Costs incurred to implement clients on our solutions (e.g., direct labor) are capitalized and amortized on a straight-line basis over the expected client relationship period if the Company expects to recover those costs.

The expected client relationship period ranges from three to eight years .

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· inputs that are derived principally from or corroborated by observable market data by correlation or other means.

available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

Level 3 Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based upon the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

The Company's corporate investments and funds held for clients (see Note 4) are measured at fair value on a recurring basis as described below.

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To determine the fair value of the Company's Level 2 investments, the independent pricing service uses pricing models for each asset class that are consistent with what other market participants would use, including the market approach.

Inputs and assumptions to the pricing model of the independent pricing service are derived from market observable sources including:

Inputs and assumptions to the pricing model used by the independent pricing service are derived from market observable sources including:

benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and other market-related data.

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For the purposes of valuing the Company’s asset-backed securities and mortgage-backed securities that are included within Other securities in Note 4, the independent pricing service includes additional inputs to the model such as monthly payment information, new issue data, and collateral performance.

For the purposes of valuing the Company’s Municipal bonds, the independent pricing service includes Municipal Market Data benchmark yield curves as additional inputs to the model.

For the purposes of valuing the Company’s Municipal bonds, the independent pricing service includes quoted prices for similar assets, benchmark yield curves, and market corroborated inputs.

While the Company is not provided access to the proprietary models of the third party pricing service, each quarterly reporting period, the Company reviews the inputs utilized by the independent pricing service and compares the valuations received from the independent pricing service to valuations from at least one other observable source for reasonableness.

The Company has not adjusted the prices obtained from the independent pricing service and the Company believes the prices received from the independent pricing service are representative of the prices that would be received to sell the assets at the measurement date (exit price).

The Company has no available-for-sale securities included in Level 1 and Level 3.

In fiscal 2016, the Company issued fixed-rate notes with 5 -year and 10 -year maturities for an aggregate principal amount of $ 2.0 billion (collectively the "Notes").

The Company had no available-for-sale securities included in Level 1 and Level 3 at June 30, 2021.

In fiscal 2021, the Company issued two series of fixed-rate notes with staggered maturities of 7 and 10 -years totaling $ 2.0 billion, and in fiscal 2016 the Company issued fixed rate notes with a 10 -year maturity of $ 1.0 billion, for an aggregate principal amount of $ 3.0 billion (collectively the “Notes”).

The fair value of the Notes are estimated in Note 9 utilizing a variety of inputs obtained from an independent pricing service, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data.

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

The Company reviews the values generated by the independent pricing service for reasonableness by comparing the valuations received from the independent pricing service to valuations from at least one other observable source.

The Company has not adjusted the prices obtained from the independent pricing service.

In fiscal 2020, the Company entered into a series of treasury rate lock transactions to hedge its exposure to changes in interest rates.

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.

See Note 9 for additional details.

The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy.

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Depreciation is recognized over the estimated useful lives of the assets using the straight-line method.

Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements.

Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the

improvements.

The estimated useful lives of assets are primarily as follows:

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Furniture and fixtures 4 to 7 years

Operating lease ROU assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term.

Operating lease right-of-use ( “ ROU ” ) assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term.

The lease liabilities are measured by discounting future lease payments at the Company’s collateralized incremental borrowing rate for financing instruments of a similar term, unless the implicit rate is readily determinable.

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The Company does not use derivative financial instruments for trading purposes.

In fiscal 2020, the Company entered into a series of treasury rate lock transactions to hedge its exposure to changes in interest rates.

See Note 9 for additional details.

Earnings per Share (“EPS”).

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For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers' compensation claims cost estimates.

PEO Services has secured a workers’ compensation and employer’s liability insurance policy that has a $ 1 million per occurrence retention and, in fiscal years 2012 and prior, aggregate stop loss insurance that covers any aggregate losses within the $ 1 million retention that collectively exceed a certain level, from an admitted and licensed insurance company of AIG.

PEO Services has secured a workers’ compensation and employer’s liability insurance policy that caps the exposure for each claim at $ 1 million per occurrence and has also secured aggregate stop loss insurance that caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and licensed insurance company of AIG.

The Company has obtained approximately $ 273 million of irrevocable standby letters of credit in favor of licensed insurance companies of AIG to secure TotalSource workers’ compensation obligations if ADP were to fail to reimburse AIG for workers’ compensation payments.

The Company had no drawdowns during June 30, 2021 and 2020 under the letters of credit.

Beginning in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited ("Chubb"), to cover substantially all losses incurred by ADP Indemnity during these policy years.

Additionally, starting in fiscal 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company a wholly-owned subsidiary of Chubb Limited to cover substantially all losses incurred by the Company up to the $ 1 million per occurrence related to workers' compensation and employer's liability deductible reimbursement insurance protection for PEO services worksite employees.

Each of these reinsurance arrangements limit our overall exposure incurred up to a certain limit.

The Company believes the likelihood of ultimate losses exceeding this limit is remote .

ADP Indemnity paid a premium of $ 240 million to enter into a reinsurance arrangement with Chubb Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal 2021 policy year up to $ 1 million per occurrence.

ADP Indemnity paid a premium of $ 260 million in July 2021 to enter into a reinsurance arrangement to cover substantially all losses for the fiscal 2022 policy year on terms substantially similar to the fiscal 2021 policy.

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If the estimate of the amount of the loss is a range and some amount within the range appears to be a better estimate than any other amount within the range, that amount is accrued as a liability.

If no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued as a liability.

within the range is a better estimate than any other amount, the minimum amount of the range is accrued as a liability.

These accruals are adjusted periodically as assessments change or additional information becomes available.

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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 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 6 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”) which have been assessed and are applicable to the Company:

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) Upon adoption of the CECL standard, in fiscal 2021, the Company intends to book an immaterial cumulative-effect adjustment to retained earnings.

The most notable impact relates to the newly implemented processes around the assessment of the adequacy of our allowance for doubtful accounts on accounts receivable.

The adoption of this guidance will not have a material impact on the Company's 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.

HCM provides a suite of product offerings that assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement.

Global is generally consistent with the types of services provided within HCM but represent geographies outside of the United States and includes our multinational offerings.

HCM and Global revenues are primarily attributable to fees for providing solutions for payroll, benefits, talent, retirement services and HR processing and fees charged to implement the Company's solutions for clients.

HRO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment insurance, among other human resources functions.

This revenue is primarily driven by PEO.

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 includes a reconciliation to the Company’s reportable segments:

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 includes a reconciliation to the Company’s reportable segments:

Types of Revenues 2021 2020 2019

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Contract liability, net of revenue recognized on contracts during the period 130.2

Currency adjustments ( 6.4 )

Currency translation adjustments 26.5

Contract liability, June 30, 2021 $ 516.1

Deferred costs

Deferred costs are periodically reviewed for impairment.

There were no impairment losses incurred during the period.

The balance is as follows:

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(1) The amount of total deferred costs amortized during the twelve months ended June 30, 2021, June 30, 2020, and June 30, 2019 were $ 935.3 million, $ 915.0 million, and $ 874.0 million, respectively.

Deferred costs are periodically reviewed for impairment.

There were no impairment losses incurred during the period.

OTHER (INCOME)/EXPENSE, NET

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Gain on sale of investment ( 1.7 ) ( 0.2 ) ( 15.7 )

Non-service components of pension (income)/expense, net (see Note 10) ( 74.5 ) ( 6.7 ) 253.8

Non-service components of pension income, net (see Note 10) ( 58.6 ) ( 74.5 ) ( 6.7 )

Other (income)/expense, net $ ( 96.3 ) $ ( 148.0 ) $ ( 111.1 )

In fiscal 2020, the Company recorded impairment charges of $ 25.3 million as a r esult of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.

In addition, the Company vacated certain leased locations early and recorded total impairment charges of $ 4.6 million to operating right-of-use assets and certain related fixed assets associated with the vacated locations.

In fiscal 2021, the Company recorded impairment charges of $ 19.9 million which is comprised of a write down of $ 10.5 million related to internally developed software which was determined to have no future use, impairment charges of $ 9.4 million related to operating right-of-use assets and certain related fixed assets associated with vacating certain leased locations early, and recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.

In fiscal 2020, the Company recorded impairment charges of $ 25.3 million as a result of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.

In addition, the Company vacated certain leased locations early and recorded total impairment charges of $ 4.6 million related to operating right-of-use assets and certain related fixed assets associated with the vacated locations.

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 a recent acquisition.

In fiscal 2019, the Company recognized a gain of $ 15.7 million in relation to the sale of an investment held at cost acquired in prior years and subsequently sold during fiscal 2019.

In fiscal 2019, the Company recognized a gain of $ 15.7 million in relation to the sale of an investment held at cost acquired in

prior years and subsequently sold during fiscal 2019.

CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS

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Corporate bonds 11,732.3 321.9 ( 38.5 ) 12,015.7

Asset-backed securities 3,274.6 96.0 ( 0.5 ) 3,370.1

Treasury securities 4,036.9 64.8 ( 9.3 ) 4,092.4

3,580.6 120.8 — 3,701.4

government agency securities 1,128.2 35.6 — 1,163.8

Asset-backed securities 2,279.8 60.9 ( 0.9 ) 2,339.8

Canadian government obligations and

1 unchanged sentence

1,542.3 15.0 ( 9.0 ) 1,548.3

Commercial Mortgage-Backed Securities 814.3 53.9 — 868.2

government agency securities 1,446.3 22.5 ( 9.4 ) 1,459.4

Canadian provincial bonds 956.3 22.7 ( 5.3 ) 973.7

Commercial mortgage-backed securities 793.4 41.2 — 834.6

Other securities 1,082.2 30.9 ( 5.3 ) 1,107.8

16 unchanged sentences

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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All available-for-sale securities were included in Level 2 of the fair value hierarchy.

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.” The Company did not transfer any assets between Levels during fiscal 2020 or 2019.

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

The Company has no available-for-sale securities included in Level 1 or Level 3 as of June 30, 2020.

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.” 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 June 30, 2021.

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, 2021, are as follows:

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Corporate bonds $ ( 38.5 ) $ 3,539.6 $ — $ — $ ( 38.5 ) $ 3,539.6

Asset-backed securities ( 0.5 ) 43.9 — — ( 0.5 ) 43.9

Treasury securities ( 9.3 ) 580.9 — — ( 9.3 ) 580.9

— 2.0 — — — 2.0

government agency securities

Asset-backed securities ( 0.9 ) 160.9 — — ( 0.9 ) 160.9

Canadian government obligations and

Canadian government agency obligations

Commercial Mortgage-Backed Securities — — — 1.5 — 1.5

( 9.0 ) 721.3 — — ( 9.0 ) 721.3

government agency securities

( 9.4 ) 749.7 — — ( 9.4 ) 749.7

Canadian provincial bonds ( 5.3 ) 253.7 — — ( 5.3 ) 253.7

Commercial mortgage-backed securities — 16.7 — — — 16.7

Other securities ( 5.2 ) 308.5 ( 0.1 ) 1.9 ( 5.3 ) 310.4

13 unchanged sentences

government agency securities

— — ( 5.8 ) 1,671.4 ( 5.8 ) 1,671.4

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 June 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 July 2020 through March 2030 .

At June 30, 2020, asset-backed securities primarily include AAA-rated senior tranches of securities with predominately prime collateral of fixed-rate auto loan, credit card, equipment lease and rate reduction receivables with fair values of $ 1,666.6

million, $ 1,256.0 million, $ 344.4 million, and $ 102.4 million, respectively.

These securities are collateralized by the cash flows of the underlying pools of receivables.

At June 30, 2021, 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 July 2021 through July 2031.

At June 30, 2021, asset-backed securities include AAA-rated senior tranches of securities with predominately prime collateral of fixed-rate auto loan, credit card, equipment lease and rate reduction receivables with fair values of $ 1,247.4 million, $ 759.5 million, $ 263.5 million, and $ 68.7 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.

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At June 30, 2021, U.S.

government agency securities primarily include debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks with fair values of $ 561.1 million and $ 432.0 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 fro m July 2020 through December 2029 .

government agency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $ 827.3 million and $ 536.8 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 July 2021 through June 2031.

At June 30, 2021, U.S.

government agency commercial mortgage-backed securities of $ 834.6 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.

At June 30, 2020, other securities and their fair value primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above, with fair values of $ 592.7 million, AA-rated United Kingdom Gilt securities of $ 189.9 million, and AAA-rated and AA-rated supranational bonds of $ 91.4 million.

At June 30, 2021, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above, with fair values of $ 569.5 million and AA-rated United Kingdom Gilt securities of $ 237.5 million.

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

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Cash and cash equivalents $ 2,575.2 $ 1,908.5

Short-term marketable securities — 10.5

Long-term marketable securities (a) 13.6 261.4

Short-term marketable securities (a) 10.4 —

Long-term marketable securities (b) 23.5 13.6

Total corporate investments $ 2,609.1 $ 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.

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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 received from and paid on behalf of clients on a net basis within net increase in client funds obligations in the financing activities section of the Statements of Consolidated Cash Flows.

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Total available-for-sale securities $ 24,371.7

During the three months ended June 30, 2020, the Company made a decision to sell certain available-for-sale securities in the funds held for clients as the Company anticipated client fund obligations would decline due to reduction in employment levels from a slowdown in the economy as a result of the COVID-19 pandemic.

To maintain the size of the funds held for clients in line with client fund obligations, the Company reduced its holdings of available-for-sale securities in the funds held for clients and sold approximately $ 1.6 billion of its available-for-sale securities.

PROPERTY, PLANT AND EQUIPMENT

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Depreciation of property, plant and equipment was $ 183.3 million, $ 192.8 million, and $ 180.6 million for fiscal 2021, 2020 and 2019, respectively.

The Company recorded impairment charges of $ 25.3 million as a result of recognizing certain owned facilities at fair value given intent to sell and accordingly classified as held for sale.

The fair value of these owned buildings subsequent to the write down is approximately $ 6.7 million and is not material for reclassification separately on the Consolidated Balance Sheet s .

In 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 sheets 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 has certain assets classified as held for sale given intent to sell.

The fair value of these assets was approximately $ 29.8 million and $ 6.7 million as of June 30, 2021and 2020, respectively, and it is not material for reclassification separately on the Consolidated Balance Sheets.

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 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 .

As of June 30, 2020, total operating lease ROU assets were $ 493.7 million, current and long-term operating lease liabilities were approximately $ 95.5 million and $ 344.4 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:

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Total operating lease cost $ 166.7 $ 176.5

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

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

Cash paid for operating lease liabilities $ 142.2 $ 224.7

Operating lease ROU assets obtained in exchange for new operating lease liabilities $ 120.2 $ 160.4

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

June 30, June 30,

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

Weighted-average discount rate 2.2 % 2.3 %

Current operating lease liability $ 94.7 $ 95.5

As of June 30, 2021, maturities of operating lease liabilities are as follows:

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Net lease obligations $ 437.9

During fiscal 2020, the Company recorded impairment charges of $ 4.6 million in the United States and $ 2.2 million outside of the United States to our operating right-of-use assets associated with various vacated locations.

GOODWILL AND INTANGIBLE ASSETS, NET

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Balance at June 30, 2020 $ 2,304.6 $ 4.8 $ 2,309.4

Additions and other adjustments ( 2.5 ) — ( 2.5 )

Currency translation adjustments 29.0 — 29.0

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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.

In June 2020, the Company decreased its U.S short-term commercial paper program to provide for the issuance of up to $ 9.7 billion from $ 10.3 billion in aggregate maturity value.

The Company’s commercial paper program is rated A-1+ by Standard & Poor’s and Prime-1 (“P-1”) by Moody’s.

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.

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Weighted average interest rates 0.1 % 1.6 %

Weighted average maturity (approximately in days) 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 June 30, 2020 and 2019, the Company had $ 13.6 million and $ 262.0 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

At June 30, 2021 and 2020, there were $ 23.5 million and $ 13.6 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

Details of the reverse repurchase agreements are as follows:

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Weighted average interest rates 0.2 % 1.6 %

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

In August 2020, the Company redeemed $ 1.0 billion of senior notes bearing a fixed interest rate of 2.25 %.

In addition, the Company terminated several derivative contracts in place to hedge exposure in changes in benchmark interest rates for the senior notes issued in August 2020 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 (loss) and will be amortized to earnings over the life of the senior notes due in 2030 as the interest payments are made.

The principal amounts and associated effective interest rates of the Notes and other debt as of June 30, 2021 and 2020 are as follows:

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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 —

Fixed-rate 1.700 % notes due May 15, 2028

1.85 % 1,000.0 —

Other 6.9 8.4

3,006.9 2,008.4

current portion ( 1,001.8 ) ( 2.5 )

current portion (a) ( 1.2 ) ( 1,001.8 )

unamortized discount and debt issuance costs ( 20.7 ) ( 3.8 )

Total long-term debt $ 2,985.0 $ 1,002.8

(a) - Current portion of long-term debt as of June 30, 2021 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.

1 unchanged sentence

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 13 for the impact to accumulated other comprehensive income.

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

On July 15, 2020, the Company gave notice to the current holders of our intention to redeem the $ 1.0 billion 2.25 % Senior Notes due September 15, 2020 on the call date of August 15, 2020.

It is the Company's intent to issue new long-term notes to fund this redemption and which also may be used for general corporate purposes.

If necessary in the interim, the Company intends to issue commercial paper to fund the Notes’ redemption until such time as the new Notes are issued.

EMPLOYEE BENEFIT PLANS

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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.

Stock options are generally 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.

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• 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.

Time-based restricted stock and time-based restricted stock units generally vest ratably over 3 years.

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

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

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

During 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.

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

The Company repurchased 8.2 million shares in fiscal 2021 as compared to 6.2 million shares repurchased in fiscal 2020.

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Pension Plans

The Company has a defined benefit cash balance pension plan under which employees are credited with a percentage of base pay plus interest.

The Company has a defined benefit cash balance pension plan.

pension plan, which is currently closed to new entrants, was frozen effective July 1, 2020.

2 unchanged sentences

Treasury rate.

Employees are fully vested upon completion of three years of service.

The Company's policy is to make contributions within the range determined by generally accepted actuarial principles.

In 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.

In fiscal 2019 and 2018, the Company recorded $ 48.2 million and $ 319.6 million of non-cash settlement charges and special termination benefits, respectively.

The Company also has various retirement plans for its non-U.S.

3 unchanged sentences

A June 30 measurement date was used in determining the Company's benefit obligations and fair value of plan assets.

The Company is required to (a) recognize in its Consolidated Balance Sheets an asset for a plan's net overfunded status or a liability for a plan's net underfunded status, (b) measure a plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year, and (c) recognize changes in the funded status of a defined benefit plan in the year in which the changes occur in accumulated other comprehensive (loss)/income.

The Company's pension plans' funded status as of June 30, 2021 and 2020 is as follows:

14 unchanged sentences

Plan changes — 0.4

Curtailments and special termination benefits — 2.2

Benefits paid ( 100.4 ) ( 100.1 )

13 unchanged sentences

Fair value of plan assets $ 18.7 $ 1,835.4

The components of net pension expense were as follows:

The components of net pension (income)/ expense were as follows:

2021 2020 2019

3 unchanged sentences

Net amortization and deferral 9.3 6.8 0.1

Special termination benefits and plan curtailments ( 22.0 ) 48.7 319.5

Special termination benefits, plan curtailments, and settlement charges 2.9 ( 22.0 ) 48.7

Net pension (income)/expense $ ( 52.8 ) $ ( 11.6 ) $ 55.4

As a result of the freeze of the U.S.

pension plan, described above, the Company recognized $ 17.0 million of prior service credits during fiscal 2020 within Other Income, net, which were previously recognized within accumulated other comprehensive income (see Note 13).

pension plan, described above, the Company recognized $ 17.0 million of prior service credits during fiscal 2020 within Other (income)/expense, net, which were previously recognized within accumulated other comprehensive income (loss) (see Note 13).

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.

In fiscal 2019, the Company recorded $ 48.2 million of non-cash settlement charges and special termination benefits.

The net actuarial loss and prior service cost for the defined benefit pension plans that are included in accumulated other comprehensive income (loss) that have not yet been recognized as components of net periodic benefit cost are $ 145.8 million and $ 2.5 million, respectively, at June 30, 2021.

There is no remaining transition obligation for the defined benefit pension plans included in accumulated other comprehensive income.

There is no remaining transition obligation for the defined benefit pension plans included in accumulated other comprehensive income (loss).

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost in fiscal 2022 are $ 6.6 million and $ 0.3 million, respectively.

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Discount rate 2.55 % 2.45 %

Increase in compensation levels 4.00 % 4.00 %

Increase in compensation levels N/A 4.00 %

Assumptions used to determine the net pension expense generally were:

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The pension plans' equity portfolios are subject to diversification guidelines to reduce the impact of losses in single investments.

Investment managers are prohibited from buying or selling commodities and from the short selling of securities.

Investment managers are prohibited from buying or selling commodities and from the.

short selling of securities.

None of the pension plans' assets are directly invested in the Company's stock, although the pension plans may hold a minimal amount of Company stock to the extent of the Company's participation in equity indices.

56 unchanged sentences

Valuation allowance release on foreign tax credits — — ( 20.3 ) ( 0.6 ) — —

tax on foreign income — — — — 12.0 0.5

Utilization of foreign tax credits — — — — ( 19.6 ) ( 0.9 )

Tax settlements — — — — ( 31.9 ) ( 1.4 )

Re-measurement of deferred tax balances — — — — ( 253.3 ) ( 11.1 )

Resolution of tax matters - Section 199 Qualified production activities and research tax credit refund claim — — — — ( 33.3 ) ( 1.5 )

Foreign rate differential 34.0 1.0 44.9 1.4 46.9 1.6

2 unchanged sentences

$ 762.7 22.7 $ 716.1 22.5 $ 712.8 23.7

The effective tax rate in fiscal 2021 and 2020 was 22.7 % and 22.5 %, respectively.

The increase in the effective tax rate is primarily due to combined benefits from a valuation allowance release related to foreign tax credit carryforwards and a foreign tax law change during fiscal 2020 as well as a decrease in the excess tax benefit on stock-based compensation, partially offset by favorable adjustments to prior year tax liabilities during fiscal 2021.

The effective tax rate for fiscal 2020 and 2019 was 22.5 % and 23.7 %, 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, the benefit of a foreign tax law change and lower reserves for uncertain tax positions during fiscal 2020 partially offset by favorable adjustments to prior year tax liabilities during fiscal 2019.

The effective tax rate for fiscal 2019 and 2018 was 23.7 % and 17.4 %, respectively.

The increase in the effective tax rate is primarily due to the one-time benefit recognized on the re-measurement of deferred tax balances, primarily as a result of ASC 606, using the lower tax rates enacted under the Act, the release of reserves for uncertain tax positions during fiscal 2018 and the loss of the qualified production activities tax deduction as a result of the Act during fiscal 2019.

This is partially offset by the reduction in the federal corporate statutory tax rate to 21 % from our blended rate for fiscal 2018 of 28.1 % as a result of the Act.

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:

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Prepaid expenses 27.9 82.3

Prepaid retirement benefits 37.7 —

Unrealized investment gains, net 101.7 187.9

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During the fiscal years 2021, 2020, and 2019, the Company recorded interest expense of $ 10.8 million, $ 1.6 million, and $ 1.9 million, respectively.

During fiscal year 2020, the Company recorded a benefit for penalties of $ 0.3 million, penalties incurred during fiscal years 2019, and 2018 were not significant.

During fiscal year 2021, the Company recorded penalties of $ 0.3 million, penalties recorded during fiscal years 2020, and 2019 were not significant.

At June 30, 2021, the Company had accrued interest of $ 19.2 million recorded on the Consolidated Balance Sheets, of which $ 3.9 million was recorded within income taxes payable, and the remainder was recorded within other liabilities.

At June 30, 2020, the Company had accrued interest of $ 8.8 million recorded on the Consolidated Balance Sheets, of which $ 1.0 million was recorded within income taxes payable, and the remainder was recorded within other liabilities.

At June 30, 2021, the Company’s accrued penalties of $ 0.3 million was recorded on the Consolidated Balance Sheets within income taxes payable.

At June 30, 2020, the Company's accrued penalties recorded on the Consolidated Balance Sheets within other liabilities were not material.

At June 30, 2019, the Company had accrued penalties of $ 0.3 million recorded on the Consolidated Balance Sheets within other liabilities.

The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations.

2 unchanged sentences

Taxing Jurisdiction Fiscal Years under Examination

(IRS) 2019 - 2020

Wisconsin 2015 - 2018

Illinois 2017 - 2018

Massachusetts 2013 - 2014, 2016 - 2018

Texas 2016 - 2018

Michigan 2012 - 2018

1 unchanged sentence

New York City 2016 - 2017

Florida 2016 - 2018

India 2004 - 2011, 2013 - 2018

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COMMITMENTS AND CONTINGENCIES

As of June 30, 2020 , the Company has purchase commitments of appro ximately $ 613.2 million, including a reinsurance premium with Chubb for the fiscal 2021 policy year, as well as obligations related to software license agreements and purchase and maintenance agreements on our software, equipment, and other assets, of which $ 415.6 million relates to fiscal 2021, $ 165.3 million relates to the fiscal year ending June 30, 2022, and the remaining relates to fiscal years ending June 30, 2023 through fiscal 2025.

As of June 30, 2021 , the Company has purchase commitm ents of approximately $ 658.6 million, including a reinsurance premium with Chubb for the fiscal 2022 policy year, as well as obligations related to software license agreements and purchase and maintenance agreements on our software, equipment, and other assets, of which $ 448.5 million relates to fiscal 2022, $ 184.8 million relates to the fiscal year ending June 30, 2023, and the remaining relates to fiscal years ending June 30, 2024 through fiscal 2026.

In June 2018, a potential class action complaint was filed against the Company in the Circuit Court of Cook County, Illinois asserting that ADP violated the Illinois Biometric Privacy Act in connection with its collection, use and storage of biometric data of employees of its clients who are residents of Illinois.

In addition, similar potential class action complaints have been filed in Illinois state courts against ADP and/or certain of its clients with respect to the collection, use and storage of biometric data of the employees of these clients.

In June 2020, the Company reached a settlement of all outstanding claims against ADP for $ 25.0 million, subject to the court's preliminary approval.

In June 2020, the Company reached a settlement of all outstanding claims against ADP for $ 25.0 million, In February 2021, the court granted final approval of the $ 25.0 million settlement.

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 June 2021, the Company received a $ 15 million insurance recovery related to this litigation.

In May 2020, two potential class action complaints were filed against ADP, TotalSource and related defendants in the U.S.

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The Company does not expect any material losses related to such representations and warranties.

RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE (LOSS)/INCOME

RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME ("AOCI")

Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss).

1 unchanged sentence

Other comprehensive income (loss) was $ 25.4 million, $ 242.5 million, and $ 422.5 million in fiscal 2021, 2020, and 2019, respectively.

Changes in Accumulated Other Comprehensive (Loss)/Income (“AOCI”) by component are as follows:

Changes in Accumulated Other Comprehensive Income (“AOCI”) by component are as follows:

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

4 unchanged sentences

Tax effect — ( 0.3 ) — ( 9.5 ) ( 9.8 )

Reclassification to retained earnings (C) — ( 7.1 ) (C) — ( 35.2 ) (C) ( 42.3 )

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

6 unchanged sentences

Tax effect — 82.6 0.8 ( 69.0 ) 14.4

Reclassification adjustments to net earnings — ( 12.9 ) (A) — ( 11.8 ) (B) ( 24.7 )

Reclassification adjustments to net earnings — ( 11.3 ) (A) 3.8 (C) 9.3 (B) 1.8

Tax effect — 2.5 ( 0.9 ) ( 2.7 ) ( 1.1 )

2 unchanged sentences

(B) Reclassification adjustments out of AOCI are included in net pension (income)/expense (see Note 10).

In fiscal 2020, reclassification includes $ 17.0 million of prior service credits which were recognized as a component of net pension (income)/expense as a result of the US pension plan freeze.

(C) During fiscal 2018, the Company adopted ASU 2018-02 and reclassified stranded tax effects attributable to the Act from AOCI to retained earnings.

The fiscal 2018 Consolidated Balance Sheets reflect the reclassification out of accumulated other comprehensive (loss)/income into retained earnings.

In fiscal 2020, reclassification includes $ 17.0 million of prior service credits which were recognized as a component of net pension (income)/expense as a result of the U.S.

pension plan freeze.

(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings (see Note 9).

FINANCIAL DATA BY SEGMENT AND GEOGRAPHIC AREA

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, legal settlements, 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.

In 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 reflects 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.

Employer Services PEO Services Other Total

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Assets $ 36,508.3 $ 2,807.9 $ 1,950.5 $ 621.0 $ 41,887.7

QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Summarized quarterly results of our operations for the fiscal years ended June 30, 2020 and June 30, 2019 are as follows:

Year ended June 30, 2020 First

Quarter Second Quarter Third

Quarter Fourth

Revenues $ 3,495.7 $ 3,669.5 $ 4,047.8 $ 3,376.8

Costs of revenues $ 2,044.8 $ 2,094.1 $ 2,239.1 $ 2,067.2

Gross profit $ 1,450.9 $ 1,575.4 $ 1,808.7 $ 1,309.6

Earnings before income taxes $ 739.1 $ 835.5 $ 1,076.7 $ 531.3

Net earnings $ 582.4 $ 651.6 $ 820.9 $ 411.5

Basic per common share amounts:

Basic earnings per share $ 1.35 $ 1.51 $ 1.91 $ 0.96

Diluted per common share amounts:

Diluted earnings per share $ 1.34 $ 1.50 $ 1.90 $ 0.96

Year ended June 30, 2019 First

Quarter Second Quarter Third

Quarter Fourth

Revenues (A) $ 3,310.3 $ 3,492.4 $ 3,828.2 $ 3,479.3

Costs of revenues (A) $ 1,927.6 $ 2,000.2 $ 2,092.6 $ 2,001.1

Gross profit $ 1,382.7 $ 1,492.2 $ 1,735.6 $ 1,478.2

Earnings before income taxes $ 646.8 $ 741.0 $ 984.5 $ 633.3

Net earnings $ 505.4 $ 558.2 $ 753.7 $ 475.5

Basic per common share amounts:

Basic earnings per share $ 1.16 $ 1.28 $ 1.74 $ 1.10

Diluted per common share amounts:

Diluted earnings per share $ 1.15 $ 1.27 $ 1.73 $ 1.09

(A) The prior period amounts presented 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 of $ 12.9 million, $ 13.5 million, $ 19.2 million and $ 19.4 million for the first quarter, second quarter, third quarter and fourth quarter, respectively.

Refer to Note 1 to our consolidated financial statements for more information on this revision.

SUBSEQUENT EVENTS

On July 15, 2020, the Company gave notice to the current holders of its intention to redeem the $ 1.0 billion 2.25 % Senior Notes due September 15, 2020 on the call date of August 15, 2020, discussed in Note 9.

There are no other subsequent events for disclosure.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data