What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-04-30 · 188 added, 234 removed, 469 unchanged (47% of the section changed)

4 unchanged sentences

(In millions, except per share amounts)

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Revenues, other than interest on funds held

19 unchanged sentences

Diluted weighted average shares outstanding 423.8 430.0

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 13,894.6 million and $ 12,643.6 million for the three months ended March 31, 2021 and 2020, respectively, and $ 38,259.5 million and $ 35,525.8 million for the nine months ended March 31, 2021 and 2020, respectively.

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 13,263.2 million and $ 10,925.8 million for the three months ended September 30, 2021 and 2020, respectively.

See notes to the Consolidated Financial Statements.

3 unchanged sentences

(In millions)

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Net earnings $ 700.5 $ 602.1

Other comprehensive income/(loss):

Other comprehensive (loss)/income:

Currency translation adjustments ( 35.1 ) 50.4

16 unchanged sentences

(In millions, except per share amounts)

March 31, June 30,

September 30, June 30,

Current assets:

22 unchanged sentences

Obligations under reverse repurchase agreements (A) 45.8 23.5

Short-term debt — 1,001.8

Income taxes payable 179.3 58.2

15 unchanged sentences

authorized, 1,000.0 shares;

issued, 638.7 shares at March 31, 2021 and June 30, 2020;

outstanding, 426.0 and 429.9 shares at March 31, 2021 and June 30, 2020, respectively

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

outstanding, 422.0 and 423.7 shares at September 30, 2021 and June 30, 2021, respectively

Capital in excess of par value 1,579.1 1,531.3

1 unchanged sentence

Treasury stock - at cost:

212.7 and 208.9 shares at March 31, 2021 and June 30, 2020, respectively

216.7 and 215.0 shares at September 30, 2021 and June 30, 2021, respectively

( 15,924.2 ) ( 15,386.8 )

Accumulated other comprehensive income (loss) ( 257.7 ) ( 14.8 )

Accumulated other comprehensive (loss) income ( 122.9 ) 10.6

Total stockholders’ equity 5,350.7 5,670.1

Total liabilities and stockholders’ equity $ 59,987.2 $ 48,772.5

(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).

(A ) As of September 30, 2021, $ 45.8 million of short-term marketable securities have been pledged as collateral under the Company's reverse repurchase agreements.

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 (see Note 9).

See notes to the Consolidated Financial Statements.

3 unchanged sentences

(In millions)

Nine Months Ended

Three Months Ended

September 30,

Cash Flows from Operating Activities:

13 unchanged sentences

Increase in other assets ( 494.2 ) ( 454.8 )

Increase/(Decrease) in accounts payable 9.8 ( 3.6 )

Increase/(Decrease) in accrued expenses and other liabilities 321.1 ( 34.0 )

(Decrease)/Increase in accounts payable ( 61.9 ) 5.7

Decrease in accrued expenses and other liabilities ( 413.8 ) ( 23.1 )

Net cash flows provided by operating activities 121.9 481.9

14 unchanged sentences

Dividends paid ( 393.2 ) ( 391.0 )

Net payments related to reverse repurchase agreements ( 13.6 ) ( 262.0 )

Net cash flows provided by/(used in) financing activities 12,923.7 ( 964.0 )

Net proceeds/(payments) related to reverse repurchase agreements 22.3 ( 13.6 )

Net cash flows provided by financing activities 11,184.8 2,524.1

Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents ( 21.2 ) 37.9

29 unchanged sentences

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, 2021 (“fiscal 2021”).

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

presentation.

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.

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.

(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.

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

2 unchanged sentences

The following tables provide details of revenue by our strategic pillars, and include a reconciliation to the Company’s reportable segments.

Three Months Ended Nine Months Ended

March 31, March 31,

The Company made changes to certain allocation methodologies in both the current period and the prior

period in the tables below which did not materially affect our reporting of revenues by strategic pillar:

Three Months Ended

September 30,

Types of Revenues 2021 2020

5 unchanged sentences

Total Revenues $ 3,832.3 $ 3,470.7

Reconciliation of disaggregated revenue to our reportable segments for the three months ended March 31, 2021:

Types of Revenues Employer Services PEO Other Total

HCM $ 1,852.6 $ — $ ( 1.3 ) $ 1,851.3

HRO, excluding PEO zero-margin benefits pass-throughs 253.6 538.7 ( 0.8 ) 791.5

PEO zero-margin benefits pass-throughs — 784.7 — 784.7

Global 567.1 — — 567.1

Interest on funds held for clients 106.7 0.7 — 107.4

Total Segment Revenues $ 2,780.0 $ 1,324.1 $ ( 2.1 ) $ 4,102.0

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

Types of Revenues Employer Services PEO Other Total

HCM $ 1,859.8 $ — $ ( 1.5 ) $ 1,858.3

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

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

Global 540.3 — — 540.3

Interest on funds held for clients 157.5 1.4 — 158.9

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

Reconciliation of disaggregated revenue to our reportable segments for the nine months ended March 31, 2021:

Reconciliation of disaggregated revenue to our reportable segments for the three months ended September 30, 2021:

Types of Revenues Employer Services PEO Other Total

5 unchanged sentences

Total Segment Revenues $ 2,571.5 $ 1,264.1 $ ( 3.3 ) $ 3,832.3

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

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

Types of Revenues Employer Services PEO Other Total

8 unchanged sentences

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

Changes in deferred revenue related to set up fees for the nine months ended March 31, 2021 were as follows:

Changes in deferred revenue related to set up fees for the three months ended September 30, 2021 were as follows:

Contract Liability

3 unchanged sentences

Currency translation adjustments ( 6.2 )

Contract liability, March 31, 2021 $ 520.1

Contract liability, September 30, 2021 $ 498.9

Earnings per Share (“EPS”)

1 unchanged sentence

Shares Diluted

Three Months Ended March 31, 2021

Net earnings $ 810.7 $ 810.7

Weighted average shares (in millions) 425.8 0.8 1.1 427.7

EPS $ 1.90 $ 1.90

Three Months Ended March 31, 2020

Net earnings $ 820.9 $ 820.9

Weighted average shares (in millions) 430.0 0.9 0.9 431.8

EPS $ 1.91 $ 1.90

Nine Months Ended March 31, 2021

Three Months Ended September 30, 2021

Net earnings $ 700.5 $ 700.5

1 unchanged sentence

EPS $ 1.66 $ 1.65

Nine Months Ended March 31, 2020

Three Months Ended September 30, 2020

Net earnings $ 602.1 $ 602.1

1 unchanged sentence

EPS $ 1.40 $ 1.40

Options to purchase 0.4 million and 1.3 million shares of common stock for the three months ended March 31, 2021 and 2020, respectively, and 1.7 million and 1.1 million shares of common stock for the nine months ended March 31, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Stock Options to purchase 0.3 million and 2.1 million shares of common stock for the three months ended September 30, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Other (Income)/Expense, Net

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Interest income on corporate funds $ ( 9.7 ) $ ( 13.8 )

4 unchanged sentences

Other (income)/expense, net $ ( 28.8 ) $ ( 24.9 )

Other (income)/expense, net, decreased for the three and nine months ended March 31, 2021 primarily as a result of a decrease in interest income on corporate funds due to lower interest rates earned.

See Note 11 for further details on non-service components of pension (income)/expense, net.

Other (income)/expense, net, increased for the three months ended September 30, 2021 primarily as a result of an increase in non-service components of pension income.

Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at March 31, 2021 and June 30, 2020 were as follows:

March 31, 2021

Corporate investments and funds held for clients at September 30, 2021 and June 30, 2021 were as follows:

September 30, 2021

Losses Fair Market Value (A)

3 unchanged sentences

Corporate bonds 12,803.0 275.7 ( 62.5 ) 13,016.2

Asset-backed securities 2,538.5 68.6 ( 1.9 ) 2,605.2

Treasury securities 4,053.9 52.9 ( 14.6 ) 4,092.2

government agency securities 1,428.2 20.1 ( 15.2 ) 1,433.1

Asset-backed securities 2,259.1 49.9 ( 2.1 ) 2,306.9

Canadian government obligations and Canadian government agency obligations

1,559.7 12.0 ( 11.8 ) 1,559.9

Commercial mortgage-backed securities 795.3 39.8 ( 0.3 ) 834.8

government agency securities 1,466.4 17.9 ( 12.4 ) 1,471.9

Canadian provincial bonds 871.4 19.0 ( 6.5 ) 883.9

Commercial mortgage-backed securities 837.7 36.0 ( 0.6 ) 873.1

Other securities 1,069.7 26.6 ( 7.7 ) 1,088.6

9 unchanged sentences

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

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 Canadian government agency obligations

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

3 unchanged sentences

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” in the Company's Annual Report on Form 10-K for fiscal 2020.

10-K for fiscal 2021.

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

The Company had no available-for-sale securities included in Level 1 or Level 3 at March 31, 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 March 31, 2021, are as follows:

March 31, 2021

The Company had no available-for-sale securities included in Level 1 or Level 3 at September 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 September 30, 2021, are as follows:

September 30, 2021

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

2 unchanged sentences

Corporate bonds $ ( 60.7 ) $ 5,522.8 $ ( 1.8 ) $ 50.5 $ ( 62.5 ) $ 5,573.3

Asset-backed securities ( 1.9 ) 191.9 — — ( 1.9 ) 191.9

Treasury securities ( 14.6 ) 1,515.5 — — ( 14.6 ) 1,515.5

government agency securities ( 15.2 ) 871.0 — — ( 15.2 ) 871.0

Asset-backed securities ( 2.1 ) 280.6 — — ( 2.1 ) 280.6

Canadian government obligations and Canadian government agency obligations

( 11.8 ) 944.4 — — ( 11.8 ) 944.4

Commercial mortgage-backed securities ( 0.3 ) 10.9 — 1.3 ( 0.3 ) 12.2

government agency securities ( 7.1 ) 496.3 ( 5.3 ) 315.2 ( 12.4 ) 811.5

Canadian provincial bonds ( 6.5 ) 299.5 — — ( 6.5 ) 299.5

Commercial mortgage-backed securities ( 0.6 ) 86.6 — — ( 0.6 ) 86.6

Other securities ( 7.6 ) 351.9 ( 0.1 ) 1.9 ( 7.7 ) 353.8

6 unchanged sentences

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

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

$ ( 77.6 ) $ 6,331.3 $ ( 0.1 ) $ 1.9 $ ( 77.7 ) $ 6,333.2

At March 31, 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 ran g ing from April 2021 through March 2031.

At March 31, 2021, 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 $ 1,394.6 million, $ 851.4 million, $ 283.0 million, and $ 75.5 million, respectively.

At September 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 ran g ing from October 2021 through September 2031.

At September 30, 2021, 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 $ 1,196.5 million, $ 806.0 million, $ 239.6 million, and $ 64.1 million, respectively.

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

The primary risk associated with these securities is the collection risk of the underlying receivables.

All collateral on such asset-backed securities has performed as expected through March 31, 2021.

At March 31, 2021, U.S.

All collateral on such asset-backed securities has performed as expected through September 30, 2021.

At September 30, 2021, U.S.

government agency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $ 822.0 million and $ 530.7 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 June 2021 through March 2031.

At March 31, 2021, U.S government agency commercial mortgage-backed securities of $ 834.8 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.

At March 31, 2021, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above with fair values of $ 566.3 million and AA-rated United Kingdom Gilt securities of $ 236.4 million.

At September 30, 2021, U.S government agency commercial mortgage-backed securities of $ 873.1 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.

At September 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 $ 550.6 million and AA-rated United Kingdom Gilt securities of $ 237.0 million.

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

March 31, June 30,

September 30, June 30,

Corporate investments:

7 unchanged sentences

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

March 31, June 30,

September 30, June 30,

Funds held for clients:

5 unchanged sentences

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 $ 41,043.0 million and $ 25,831.6 million at March 31, 2021 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 March 31, 2021 and June 30, 2020 , $ 36,686.9 million an d $ 23,740.0 million, respectively, are held in the grantor trust.

The Company has reported client funds obligations as a current liability on the Consolidated Balance Shee ts totaling $ 46,437.1 million and $ 34,403.8 million at September 30, 2021 and June 30, 2021, respectively.

The Company has classified funds held for clients as a current asset since these funds are held solely for the purpose of satisfying the client funds obligations.

Of the Company’s funds held for clients at September 30, 2021 and June 30, 2021 , $ 43,364.8 million an d $ 31,092.3 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.

2 unchanged sentences

The Company has reported the cash flows related to the cash received from and paid on behalf of clients on a net basis within net increase / (decrease) in client funds obligations in the financing activities section of the Statements of Consolidated Cash Flows.

Approximately 74 % of the available-for-sale securities held a AAA-rating or AA-rating at March 31, 2021, as rated by Moody's, Standard & Poor's, DBRS for Canadian dollar-denominated securities, and Fitch for asset-backed and commercial mortgage-backed securities.

All available-for-sale securities were rated as investment grade at March 31, 2021.

Expected maturities of available-for-sale securities at March 31, 2021 are as follows:

All available-for-sale securities were rated as investment grade at September 30, 2021.

Expected maturities of available-for-sale securities at September 30, 2021 are as follows:

One year or less $ 4,118.8

5 unchanged sentences

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 difference between total ROU assets and total lease liabilities is 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.

1 unchanged sentence

The components of operating lease expense were as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Operating lease cost $ 35.9 $ 39.1

3 unchanged sentences

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

Nine Months Ended

Three Months Ended

September 30,

Cash paid for operating lease liabilities $ 33.1 $ 45.3

1 unchanged sentence

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

March 31, June 30,

September 30, June 30,

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

1 unchanged sentence

Current operating lease liability $ 100.3 $ 94.7

As of March 31, 2021, maturities of operating lease liabilities are as follows:

Three months ending June 30, 2021 $ 26.2

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

Nine months ending June 30, 2022 $ 79.0

Twelve months ending June 30, 2023 96.8

7 unchanged sentences

Goodwill and Intangible Assets, net

Changes in goodwill for the nine months ended March 31, 2021 are as follows:

Changes in goodwill for the three months ended September 30, 2021 are as follows:

Services Total

1 unchanged sentence

Currency translation adjustments ( 12.6 ) — ( 12.6 )

Balance at March 31, 2021 $ 2,329.0 $ 4.8 $ 2,333.8

Balance at September 30, 2021 $ 2,321.0 $ 4.8 $ 2,325.8

Components of intangible assets, net, are as follows:

March 31, June 30,

September 30, June 30,

Intangible assets:

12 unchanged sentences

The weighted average remaining useful life of the intangible assets is 6 years ( 6 years for software and software licenses, 4 years for customer contracts and lists, and 3 years for other intangibles).

Amortization of intangible assets was $ 81.0 million and $ 71.9 million for the three months

ended March 31, 2021 and 2020, respectively, and $ 245.9 million and $ 211.0 million for the nine months ended March 31, 2021 and 2020, respectively.

Amortization of intangible assets was $ 86.2 million and $ 84.2 million for the three months ended September 30, 2021 and 2020, respectively.

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

Three months ending June 30, 2021 $ 85.8

Nine months ending June 30, 2022 $ 240.7

Twelve months ending June 30, 2023 $ 265.5

10 unchanged sentences

The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary.

The Company had no borrowings through March 31, 2021 under the credit agreements.

The Company had no borrowings through September 30, 2021 under the credit agreements.

The Company's U.S.

4 unchanged sentences

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

At March 31, 2021 and June 30, 2020, the Company had no commercial paper borrowing outstanding.

At September 30, 2021 and June 30, 2021, the Company had no commercial paper borrowing outstanding.

Details of the borrowings under the commercial paper program are as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Average daily borrowings (in billions) $ 2.0 $ 2.4

Weighted average interest rates 0.1 % 0.1 %

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

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

The Company’s U.S., Canadian and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities.

These agreements generally have terms ranging from overnight to up to five business days.

At March 31, 2021, 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.

At September 30, 2021 and June 30, 2021, the Company had $ 45.8 million and $ 23.5 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

Details of the reverse repurchase agreements are as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Average outstanding balances $ 195.1 $ 152.4

Weighted average interest rates 0.2 % 0.3 %

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 Company issued three series of fixed-rate notes with staggered maturities of 7 and 10 -years totaling $ 3.0 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 March 31, 2021 and June 30, 2020, are as follows:

Debt instrument Effective Interest Rate March 31, 2021 June 30, 2020

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

Debt instrument Effective Interest Rate September 30, 2021 June 30, 2021

Fixed-rate 3.375 % notes due September 15, 2025

2 unchanged sentences

1.83 % 1,000.0 1,000.0

Fixed-rate 1.250 % notes due September 1, 2030

Fixed-rate 1.700 % notes due May 15, 2028

1.85 % 1,000.0 1,000.0

4 unchanged sentences

Total long-term debt $ 2,985.5 $ 2,985.0

(a) - Current portion of long-term debt as of March 31, 2021 is included within Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

(a) - Current portion of long-term debt as of September 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.

As of March 31, 2021, the fair value of the Notes, based on Level 2 inputs, was $ 2,016.8 million.

As of September 30, 2021, the fair value of the Notes, based on Level 2 inputs, was $ 3,048.9 million.

2 unchanged sentences

Stock-based compensation consists of the following:

The Company's share-based compensation consists of stock options, time-based restricted stock, time-based restricted stock

units, performance-based restricted stock, and performance-based restricted stock units.

The Company also offers an employee

stock purchase plan for eligible employees.

• Stock Options.

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

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

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

Stock options are 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.

The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior.

Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of the Company's stock price, and other factors.

Similarly, the dividend yield is based on historical experience and expected future changes.

The risk-free rate is derived from the U.S.

Treasury yield curve in effect at the time of grant.

The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data.

The expected life of a stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.

• Restricted Stock.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Employee Stock Purchase Plan.

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

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

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

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

The Company repurchased 2.5 million and 2.5 million shares in the three months ended March 31, 2021 and 2020, respectively, and repurchased 5.7 million and 6.2 million shares in the nine months ended March 31, 2021 and 2020, respectively.

The Company repurchased 2.6 million and 1.7 million shares in the three months ended September 30, 2021 and 2020, respectively.

The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.

The following table represents pre-tax stock-based compensation expense for the three and nine months ended March 31, 2021 and 2020, respectively:

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

The following table represents pre-tax stock-based compensation expense for the three months ended September 30, 2021 and 2020, respectively:

Three Months Ended

September 30,

Operating expenses $ 4.8 $ 3.6

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Total stock-based compensation expense $ 42.3 $ 33.8

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.

During the three months ended September 30, 2021, the following activity occurred under the Company’s existing plans.

Stock Options:

(in thousands) Weighted

Average Price

Options outstanding at July 1, 2021 3,705 $ 135

Options granted 792 $ 207

Options exercised ( 292 ) $ 123

Options forfeited/cancelled ( 109 ) $ 166

Options outstanding at September 30, 2021 4,096 $ 149

Time-Based Restricted Stock and Time-Based Restricted Stock Units:

Number of Shares

(in thousands) Number of Units

(in thousands)

Restricted shares/units outstanding at July 1, 2021 1,141 200

Restricted shares/units granted 448 74

Restricted shares/units vested ( 484 ) ( 99 )

Restricted shares/units forfeited ( 27 ) ( 3 )

Restricted shares/units outstanding at September 30, 2021 1,078 172

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

Number of Shares

(in thousands) Number of Units

(in thousands)

Restricted shares/units outstanding at July 1, 2021 247 700

Restricted shares/units granted 114 316

Restricted shares/units vested ( 114 ) ( 263 )

Restricted shares/units forfeited ( 7 ) ( 46 )

Restricted shares/units outstanding at September 30, 2021 240 707

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

Three Months Ended

September 30,

Risk-free interest rate — % 0.1 %

Dividend yield 1.8 % 2.6 %

Weighted average volatility factor 22.7 % 25.8 %

Weighted average expected life (in years) 4.9 5.4

Weighted average fair value (in dollars) $ 33.03 $ 21.66

Pension Plans

The components of net pension income were as follows:

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Service cost – benefits earned during the period $ 1.4 $ 1.2

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Net pension (income)/expense $ ( 15.8 ) $ ( 11.1 )

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

Benefits under the plan continued to accrue through June 30, 2020, and as of July 1, 2020 and onward, participants will retain their accrued benefits

and will not accrue any future benefits due to service rendered or pay increases.

As a result of the freeze, the Company

recognized $ 17.0 million of prior service credits during the three months ended March 31, 2020 within Other Income, net,

which were previously recognized within accumulated other comprehensive income (see Note 15).

The effective tax rate for the three months ended March 31, 2021 and 2020 was 24.0 % and 23.8 %, respectively.

The increase in the effective tax rate is primarily due to the benefit of a foreign tax law change in the three months ended March 31, 2020 and a decrease in the excess tax benefit on stock-based compensation, partially offset by higher reserves for uncertain tax positions and foreign withholding taxes on future distributions in the three months ended March 31, 2020.

The effective tax rate for the nine months ended March 31, 2021 and 2020 was 22.7 % and 22.5 %, respectively.

The increase in the effective tax rate is primarily due to the ben efit from a valuation allowance release related to foreign tax credits carryforwards in the nine months ended March 31, 2020 and a decrease in the excess tax b enefit on stock-based compensation, partially offset by favorable adjustments to prior year tax liabilities and the benefits from a foreign tax election in the nine months ended March 31, 2021.

The effective tax rate for the three months ended September 30, 2021 and 2020 was 22.2 % and 21.3 %, respectively.

The increase in the effective tax rate is primarily due to favorable adjustments to prior year tax liabilities in the three months ended September 30, 2020 partially offset by an increase in the excess tax benefit on stock-based compensation in the three months ended September 30, 2021.

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.

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 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.

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Three Months Ended

March 31, 2021

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

Balance at December 31, 2020 $ 63.9 $ 1,407.6 $ 18,893.6 $ ( 14,505.4 ) $ 40.3 $ 5,900.0

Net earnings — — 810.7 — — 810.7

Other comprehensive income — — — — ( 298.0 ) ( 298.0 )

Stock-based compensation expense — 38.8 — — — 38.8

Issuances relating to stock compensation plans — 33.4 — 19.7 — 53.1

Treasury stock acquired ( 2.5 million shares repurchased)

— — — ( 433.9 ) — ( 433.9 )

Dividends declared ($ 0.93 per share)

— — ( 396.8 ) — — ( 396.8 )

Balance at March 31, 2021 $ 63.9 $ 1,479.8 $ 19,307.5 $ ( 14,919.6 ) $ ( 257.7 ) $ 5,673.9

Three Months Ended

March 31, 2020

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

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

Net earnings — — 820.9 — — 820.9

Other comprehensive income — — — — ( 3.2 ) ( 3.2 )

Stock-based compensation expense — 30.8 — — — 30.8

Issuances relating to stock compensation plans — 30.6 — 23.0 — 53.6

Treasury stock acquired ( 2.5 million shares repurchased)

— — — ( 383.8 ) — ( 383.8 )

Dividends declared ($ 0.91 per share)

— — ( 392.0 ) — — ( 392.0 )

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

Nine Months Ended

March 31, 2021

September 30, 2021

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

8 unchanged sentences

— — ( 396.8 ) — — ( 396.8 )

Balance at March 31, 2021 $ 63.9 $ 1,479.8 $ 19,307.5 $ ( 14,919.6 ) $ ( 257.7 ) $ 5,673.9

Nine Months Ended

March 31, 2020

Balance at September 30, 2021 $ 63.9 $ 1,579.1 $ 19,754.8 $ ( 15,924.2 ) $ ( 122.9 ) $ 5,350.7

Three Months Ended

September 30, 2020

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

8 unchanged sentences

— — ( 393.7 ) — — ( 393.7 )

Other — — ( 6.9 ) — — ( 6.9 )

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

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

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

1 unchanged sentence

Three Months Ended

March 31, 2021

September 30, 2021

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

Balance at December 31, 2020 $ ( 209.9 ) $ 621.0 $ ( 31.5 ) $ ( 339.3 ) $ 40.3

Balance at June 30, 2021 $ ( 226.8 ) $ 390.9 $ ( 29.9 ) $ ( 123.6 ) $ 10.6

Other comprehensive (loss)/income before reclassification adjustments ( 35.1 ) ( 130.3 ) — — ( 165.4 )

2 unchanged sentences

Tax effect — — ( 0.3 ) ( 0.3 ) ( 0.6 )

Balance at March 31, 2021 $ ( 237.4 ) $ 348.0 $ ( 30.7 ) $ ( 337.6 ) $ ( 257.7 )

Balance at September 30, 2021 $ ( 261.9 ) $ 289.8 $ ( 29.1 ) $ ( 121.7 ) $ ( 122.9 )

Three Months Ended

March 31, 2020

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

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

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

Tax effect — ( 32.2 ) 9.5 — ( 22.7 )

Reclassification adjustments to net earnings — ( 2.5 ) (A) — ( 15.0 ) (B) ( 17.5 )

Tax effect — 0.6 — 3.7 4.3

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

Nine Months Ended

March 31, 2021

September 30, 2020

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

4 unchanged sentences

Tax effect — 0.1 — ( 1.0 ) ( 0.9 )

Balance at March 31, 2021 $ ( 237.4 ) $ 348.0 $ ( 30.7 ) $ ( 337.6 ) $ ( 257.7 )

Nine Months Ended

March 31, 2020

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

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

Other comprehensive (loss)/income before reclassification adjustments ( 83.0 ) 199.9 ( 37.4 ) — 79.5

Tax effect — ( 45.4 ) 9.2 — ( 36.2 )

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

Tax effect — 2.6 — 3.7 6.3

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

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

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

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

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

pension plan freeze.

(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings (see Note 10).

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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:

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Employer Services $ 2,571.5 $ 2,376.8

3 unchanged sentences

Earnings before Income Taxes

Three Months Ended Nine Months Ended

March 31, March 31,

2021 2020 2021 2020

Three Months Ended

September 30,

Employer Services $ 784.0 $ 689.3

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements