What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2022-01-31 · 105 added, 109 removed, 305 unchanged (41% of the section changed)

20 unchanged sentences

the adequacy, effectiveness and success of our business transformation initiatives;

and the impact of any uncertainties related to major natural disasters or catastrophic events, including the coronaviru s ("COVID-19") pandemic.

and the impact of any uncertainties related to major natural disasters or catastrophic events, including the coronavirus ("COVID-19") pandemic.

ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

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EXECUTIVE OVERVIEW

Highlights from the six months ended December 31, 2021 include:

Highlights from the nine months ended March 31, 2022 include:

10% 60 basis points

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We are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions to employers around the world.

The global COVID-19 pandemic has had a significant impact on the global business environment and on our clients and we continue to advance and offer our HCM services, including the processing of payroll and tax obligations, to our clients during this time.

ADP's efforts have also been focused on providing information and tools throughout the pandemic to help clients understand and navigate the governmental relief that has been adopted globally.

In addition, we continue to add features to our Return to Workplace solution that assists our clients in bringing their employees back to work safely through a comprehensive set of tools designed to streamline the entire process.

In the second quarter, we achieved new product milestones as we continue to invest in our portfolio.

We made further progress towards the development of a new, unified user experience, and we introduced this modernization to our RUN Powered by ADP ® and Next Gen HCM client bases in the U.S.

and to our iHCM client base in Europe.

We reached a milestone of processing one million pay slips for a single client, on a single day, for the first time in our history.

At the other end of the spectrum, we continued to see growth in our new Roll™ by ADP mobile application, which serves the micro segment.

Innovation is inherent in ADP’s business, and we have a growing, agile research and development organization committed to delivering solutions in the market that redefine what HCM solutions can do for employers.

For the six months ended December 31, 2021, we delivered solid revenue growth of 10%.

Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 7% for the six months ended December 31, 2021 as compared to the six months ended December 31, 2020.

PEO average worksite employees increased 15% for the six months ended December 31, 2021, as compared to the six months ended December 31, 2020.

This remains a very dynamic and challenging business environment for our clients and prospects, but we believe the value of working with a leading, world class provider like ADP has become more compelling than ever.

We see evidence of this reflected in our continued sales momentum, as well as our very high levels of client satisfaction and retention, which continue to drive our positive financial results.

The business environment for our clients has evolved continuously since our founding, and the current global pandemic has come to represent yet another factor adding complexity to that environment.

Our HCM solutions, which include both software and outsourcing services, are designed to help our clients manage their workforces through this dynamic landscape and the changing world of work.

We are continuously seeking to enhance our leading HCM solutions to further support our clients.

During the third quarter, we continued our roll-out of a new unified user experience ("UX") across our key platforms.

Clients across our RUN, iHCM, and Next Gen HCM client bases have transitioned over to the new UX and we believe will now benefit from more intuitive HCM workflows within these key platforms.

This quarter we made progress on the roll-out of the new UX to Workforce Now, and also began the roll-out of the new UX to the ADP Mobile app, used by over 10 million active users.

We also enhanced our data offerings during the quarter.

Data continues to be one of ADP’s differentiators, and this quarter we began piloting our new Global Insight Dashboard powered by DataCloud, enabling clients outside the US to leverage the same award-winning analytics platform we have scaled in the US .

For the nine months ended March 31, 2022, we delivered solid revenue growth of 10%.

Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 7% for the nine months ended March 31, 2022 as compared to the nine months ended March 31, 2021.

PEO average worksite employees increased 16% for the nine months ended March 31, 2022, as compared to the nine months ended March 31, 2021.

We have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that provide critical support to our clients’ HCM functions.

We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our reinvestments, our longer term strategy, and our commitments to shareholder friendly actions.

We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments, our longer term strategy, and our commitments to shareholder friendly actions.

We are committed to building upon our past successes by investing in our business through enhancements in research and development and by driving meaningful transformation in the way we operate.

Our financial condition remains solid at December 31, 2021 and we remain well positioned to support our associates and our clients.

ADP was recently named one of Fortune’s Most Admired Companies for the 16th year in a row, which highlights our culture of continuous improvement, our consistency, and our focus on being a true partner to our clients as the world continues to change.

Our financial condition remains solid at March 31, 2022 and we remain well positioned to support our associates and our clients.

RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS

Total Revenues

For the three and six months ended December 31, respectively:

For the three and nine months ended March 31, respectively:

Total Revenues Total Revenues

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10% YoY Growth, Organic Constant Currency

Revenues for the three and six months ended December 31, 2021 increased due to strong client retention, new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, and an increase in our pays per control.

Revenues for the three months ended March 31, 2022 increased due to strong client retention, new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, and an increase in our pays per control, partially offset by one percentage point of pressure from foreign currency.

Revenues for the nine months ended March 31, 2022 increased due to strong client retention, new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, and an increase in our pays per control.

Refer to “Analysis of Reportable Segments” for additional discussion of the changes in revenue for each of our reportable segments, Employer Services and Professional Employer Organization (“PEO”) Services.

Total revenues for the three months ended December 31, 2021 include interest on funds held for clients of $106.0 million, as compared to $105.4 million for the three months ended December 31, 2020.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 28.4% to $32.2 billion for the three months ended December 31, 2021, partially offset by the decrease in our average interest rate earned to 1.3% for the three months ended December 31, 2021, as compared to 1.7% for the three months ended December 31, 2020.

Total revenues for the six months ended December 31, 2021 include interest on funds held for clients of $207.1 million, as compared to $211.9 million for the six months ended December 31, 2020.

The decrease in the interest earned on funds held for clients resulted from the decrease in our average interest rate earned to 1.4% for the six months ended December 31, 2021, as compared to 1.8% for the six months ended December 31, 2020, partially offset by an increase in our average client funds balances of 25.5% to $29.6 billion for the six months ended December 31, 2021.

Total revenues for the three months ended March 31, 2022 include interest on funds held for clients of $118.0 million, as compared to $107.4 million for the three months ended March 31, 2021.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 15.0% to $38.1 billion for the three months ended March 31, 2022, partially offset by the decrease in our average interest rate earned to 1.2% for the three months ended March 31, 2022, as compared to 1.3% for the three months ended March 31, 2021.

Total revenues for the nine months ended March 31, 2022 include interest on funds held for clients of $325.0 million, as compared to $319.2 million for the nine months ended March 31, 2021.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 21.2% to $32.4 billion for the nine months ended March 31, 2022, partially offset by the decrease in our average interest rate earned to 1.3% for the nine months ended March 31, 2022, as compared to 1.6% for the nine months ended March 31, 2021.

Total Expenses

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

Change 2022 2021 %

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Total expenses $ 3,348.1 $ 3,054.6 10 % $ 9,450.3 $ 8,677.0 9 %

For the three and six months ended December 31, 2021, operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $863.9 million from $765.9 million for the three months ended December 31, 2021 and 2020, respectively, and to $1,703.4 million from $1,507.0 million for the six months ended December 31, 2021 and 2020, respectively.

For the three and nine months ended March 31, 2022, operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-throughs to $897.2 million from $784.7 million for the three months ended March 31, 2022 and 2021, respectively, and to $2,600.6 million from $2,291.7 million for the nine months ended March 31, 2022 and 2021, respectively.

Additionally, operating expenses increased due to increased costs to service our client base in support of our growing revenue.

Systems development and programming costs increased for the three and six months ended December 31, 2021 due to increased investments and costs to develop, support, and maintain our new and existing products.

Selling, general and administrative expenses increased for the three months ended December 31, 2021 due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses, increased amortization of costs to obtain a contract under ASC 606, and increased travel expenses.

Selling, general and administrative expenses increased for the six months ended December 31, 2021 due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses, increased amortization of costs to obtain a contract under ASC 606, and increased travel expenses.

Interest expense increased for the three and six months ended December 31, 2021 primarily due to the issuance of a 7-year fixed-rate note totaling $1.0 billion issued in the fourth quarter of fiscal 2021, as compared to the three and six months ended December 31, 2020.

Systems development and programming costs increased for the three and nine months ended March 31, 2022 due to increased investments and costs to develop, support, and maintain our new and existing products.

Selling, general and administrative expenses increased for the three months ended March 31, 2022 due to increased selling expenses as a result of investments in our sales organization, partially offset by decreased amortization of costs to obtain a contract under ASC 606, and a decrease in our allowance for doubtful accounts of $26.0 million as a result of a decrease in estimated credit losses related to the impact of COVID-19 on our clients ("the decrease in our allowance for doubtful accounts").

Selling, general and administrative expenses increased for the nine months ended March 31, 2022 due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses and increased travel expenses, partially offset by the decrease in our allowance for doubtful accounts, and decreased amortization of costs to obtain a contract under ASC 606.

Interest expense increased for the three and nine months ended March 31, 2022 primarily due to the issuance of a 7-year fixed-rate note totaling $1.0 billion issued in the fourth quarter of fiscal 2021, as compared to the three and nine months ended March 31, 2021.

Other (Income)/Expense, net

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2022 2021 $ Change 2022 2021 $ Change

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Earnings Before Income Taxes

For the three months ended December 31:

For the three months ended March 31:

Earnings Before Income Taxes Margin

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40 bps YoY Increase

For the six months ended December 31:

For the nine months ended March 31:

Earnings Before Income Taxes Margin

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60 bps YoY Increase

Earnings before income taxes increased for the three and six months ended December 31, 2021, respectively, due to the components discussed above.

Margin increased for the three and six months ended December 31, 2021 due to increases in revenues, discussed above, partially offset by increased costs to service our client base in support of our growing revenue, and incremental pressure from growth in our zero-margin benefits pass-throughs.

Earnings before income taxes increased for the three and nine months ended March 31, 2022, respectively, due to the components discussed above.

Margin increased for the three and nine months ended March 31, 2022 due to increases in revenues discussed above, and the decrease in our allowance for doubtful accounts, partially offset by increased costs to service our client base in support of our growing revenue, and incremental pressure from growth in our zero-margin benefits pass-throughs.

Adjusted Earnings before certain Interest and Taxes ("Adjusted EBIT")

For the three months ended December 31:

For the three months ended March 31:

Adjusted EBIT Adjusted EBIT Margin

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50 bps YoY Increase

For the six months ended December 31:

For the nine months ended March 31:

Adjusted EBIT Adjusted EBIT Margin

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70 bps YoY Increase

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds extended investment strategy, gain on sale of assets, net charges related to our broad-based transformation initiatives and the impact of the net severance charges, as applicable, in the respective periods.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds extended investment strate gy, and net charges, including gain on sale of assets, related to our broad-based transformation initiatives and the impact of the net severance charges, as applicable, in the respective periods.

Provision for Income Taxes

The effective tax rate for the three months ended December 31, 2021 and 2020 was 23.7% and 22.2%, respectively.

The increase in the effective tax rate is primarily due to benefits from a foreign tax election in the three months ended December 31, 2020, partially offset by a favorable earnings mix in the three months ended December 31, 2021.

The effective tax rate for the six months ended December 31, 2021 and 2020 was 23.0% and 21.8%, respectively.

The increase in the effective tax rate is primarily due to combined benefits from adjustments to prior year tax liabilities and a foreign tax election in the six months ended December 31, 2020, partially offset by an increase in the excess tax benefits on stock-based compensation and a favorable earnings mix in the six months ended December 31, 2021.

The effective tax rate for the three months ended March 31, 2022 and 2021 was 22.0% and 24.0%, respectively.

The decrease in the effective tax rate is primarily due to an intercompany transfer of certain assets, a lower state income tax rate and a favorable earnings mix in the three months ended March 31, 2022.

The effective tax rate for the nine months ended March 31, 2022 and 2021 was 22.6% and 22.7%, respectively.

The decrease in the effective tax rate is primarily due to a favorable earnings mix, an increase in the excess tax benefits on stock-based compensation and an intercompany transfer of certain assets in the nine months ended March 31, 2022, partially offset by combined benefits from adjustments to prior year tax liabilities and a foreign tax election in the nine months ended March 31, 2021.

Adjusted Provision for Income Taxes

The adjusted effective tax rate for the three months ended December 31, 2021 and 2020 was 23.7% and 22.2%, respectively.

The adjusted effective tax rate for the six months ended December 31, 2021 and 2020 was 23.0% and 21.8%, respectively.

The adjusted effective tax rate for the three months ended March 31, 2022 and 2021 was 22.0% and 23.9%, respectively.

The adjusted effective tax rate for the nine months ended March 31, 2022 and 2021 was 22.6% and 22.7%, respectively.

The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.

Net Earnings and Diluted EPS

For the three months ended December 31:

For the three months ended March 31:

Net Earnings Diluted EPS

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16% YoY Growth

For the six months ended December 31:

For the nine months ended March 31:

Net Earnings Diluted EPS

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15% YoY Growth

For the three and six months ended December 31, 2021, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.

For the three months ended December 31, 2021, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 2.0 million shares during the three months ended December 31, 2021 and 1.6 million shares during the three months ended December 31, 2020, partially offset by the issuances of shares under our employee benefit plans.

For the six months ended December 31, 2021, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 4.6 million shares during the six months ended December 31, 2021 and 3.2 million shares during the six months ended December 31, 2020, partially offset by the issuances of shares under our employee benefit plans.

For the three and nine months ended March 31, 2022, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.

For the three months ended March 31, 2022, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 2.3 million shares during the three months ended March 31, 2022 and 2.5 million shares during the three months ended March 31, 2021, partially offset by the issuances of shares under our employee benefit plans.

For the nine months ended March 31, 2022, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 7.0 million shares during the nine months ended March 31, 2022 and 5.7 million shares during the nine months ended March 31, 2021, partially offset by the issuances of shares under our employee benefit plans.

Adjusted Net Earnings and Adjusted Diluted EPS

For the three months ended December 31:

For the three months ended March 31:

Adjusted Net Earnings Adjusted Diluted EPS

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17% YoY Growth

For the six months ended December 31:

For the nine months ended March 31:

Adjusted Net Earnings Adjusted Diluted EPS

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14% YoY Growth

For the three and six months ended December 31, 2021, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.

For the three and nine months ended March 31, 2022, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.

ANALYSIS OF REPORTABLE SEGMENTS

Three Months Ended % Change Six Months Ended

December 31, December 31, % Change

Three Months Ended % Change Nine Months Ended

March 31, March 31, % Change

Reported Organic constant currency 2022 2021 As

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Three Months Ended %

Change Six Months Ended %

December 31, December 31,

Change Nine Months Ended %

March 31, March 31,

2022 2021 As Reported 2022 2021 As

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Employer Services

Revenues increased for the three months ended December 31, 2021 due to strong retention and new business started from New Business Bookings, and an increase in our pays per control of 6%.

Revenues increased for the six months ended December 31, 2021 due to strong retention and new business started from New Business Bookings, and an increase in our pays per control of 7%, partially offset by a decrease in interest earned on funds held for clients.

Revenues increased for the three months ended March 31, 2022 due to strong retention and new business started from New Business Bookings, an increase in our pays per control of 7%, and an increase in interest earned on funds held for clients, partially offset by one percentage point of pressure from foreign currency.

Revenues increased for the nine months ended March 31, 2022 due to strong retention and new business started from New Business Bookings, and an increase in our pays per control of 7%.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased for the three and six months ended December 31, 2021 due to increased revenues discussed above, partially offset by increases in expenses.

The increases in expenses were due to increased costs to service our client base in support of our growing revenue, increases in selling expenses, and investments and costs to develop, support, and maintain our new and existing products.

For the three and six months ended December 31, respectively:

Employer Services' earnings before income taxes increased for the three and nine months ended March 31, 2022 due to increased revenues discussed above, partially offset by increases in expenses.

For the three and nine months ended March 31, respectively:

ES Margin ES Margin

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100 bps YoY Increase

Employer Services' margin increased for the three and six months ended December 31, 2021 due to increases in revenues, discussed above, partially offset by increased costs to service our client base in support of our growing revenue and investments and costs to develop, support, and maintain our products.

Three Months Ended Change Six Months Ended Change

December 31, December 31,

Employer Services' margin increased for the three and nine months ended March 31, 2022 due to increases in revenues discussed above, and the decrease in our allowance for doubtful accounts, partially offset by increased costs to service our client base in support of our growing revenue.

Three Months Ended Change Nine Months Ended Change

March 31, March 31,

2022 2021 $ % 2022 2021 $ %

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PEO Services' revenues excluding zero-margin benefits pass-throughs $ 616.6 $ 539.4 $ 77.2 14 % $ 1,536.1 $ 1,314.4 $ 221.7 17 %

PEO Services' revenue increased 15% and for the three and six months ended December 31, 2021, respectively, due to an increase in zero-margin benefits pass-throughs, and increases in average worksite employees of 16% and 15% for three and six months ended December 31, 2021, respectively, as compared to the three and six months ended December 31, 2020.

PEO Services' revenue increased 14% and 15% for the three and nine months ended March 31, 2022, respectively, due to increases in average worksite employees of 16% for the three and nine months ended March 31, 2022, respectively, as compared to the three and nine months ended March 31, 2021, and due to an increase in zero-margin benefits pass-throughs.

Earnings before Income Taxes

PEO Services' earnings before income taxes increased 14% and 17% for the three and six months ended December 31, 2021, respectively, due to increased revenues discussed above, partially offset by the increases in zero-margin benefits pass-through costs of $98.0 million and $196.4 million for the three and six months ended December 31, 2021, respectively.

For the three and six months ended December 31, respectively:

PEO Services' earnings before income taxes increased 14% and 16% for the three and nine months ended March 31, 2022, respectively, due to increased revenues discussed above, partially offset by the increases in zero-margin benefits pass-throughs of $112.5 million and $308.9 million for the three and nine months ended March 31, 2022, respectively.

For the three and nine months ended March 31, respectively:

PEO Margin PEO Margin

10 bps YoY Decrease

30 bps YoY Increase

PEO Services' margin decreased for the three months ended December 31, 2021 due to increases in zero-margin pass through costs, partially offset by an increase in revenues, discussed above.

PEO Services' margin increased for the six months ended December 31, 2021 due to an increase in revenues, discussed above, partially offset by increases in zero-margin pass through costs.

Flat 20 bps YoY Increase

PEO Services' margin was flat for the three months ended March 31, 2022 due to increase in revenues discussed above, offset by increases in selling expenses, changes in our estimated losses related to ADP Indemnity, and increases in zero-margin benefits pass-throughs.

PEO Services' margin increased for the nine months ended March 31, 2022 due to increase in revenues discussed above, partially offset by changes in our estimated losses related to ADP Indemnity, and increases in zero-margin benefits pass-throughs.

ADP Indemnity provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence.

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

ADP Indemnity recorded a pre-tax benefit of approximately $3.7 million and $14.6 million for the three and six months ended December 31, 2021, as compared to approximately $4.8 million and $15.2 million for the three and six months ended December 31, 2020, which were primarily a result of changes in our estimated actuarial losses.

ADP Indemnity recorded a pre-tax benefit of approximately $6.9 million and $21.5 million for the three and nine months ended March 31, 2022, as compared to approximately $12.0 million and $27.2 million for the three and nine months ended March 31, 2021, which were primarily a result of changes in our estimated actuarial losses.

In July 2021, ADP Indemnity paid a premium of $260 million t o enter into a reinsurance arrangement with Chubb Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal 2022 policy year on terms substantially similar to the fiscal 2021 reinsurance policy.

The primary components of “Other” are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and other interest expense.

Non-GAAP Financial Measures

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GAAP measures, and they may not be comparable to similarly titled measures at other companies.

Three Months Ended % Change Six Months Ended % Change

December 31, December 31,

Three Months Ended % Change Nine Months Ended % Change

March 31, March 31,

2022 2021 As Reported 2022 2021 As Reported

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The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”

(b) In the three months ended December 31, 2021, transformation initiatives include consulting costs relating to our company wide transformation initiatives.

In the six months ended December 31, 2021, the charges include consulting costs relating our company wide transformation initiatives offset by gain on sale of assets and net reversals relating to severance.

(b) In the three months ended March 31, 2022, transformation initiatives include consulting costs relating to our company wide transformation initiatives.

In the nine months ended March 31, 2022, the charges include consulting costs relating to our company wide transformation initiatives, partially offset by net reversals relating to severance, and gain on sale of assets.

Unlike other severance charges which are not included as an adjustment to get to adjusted results, these specific charges relate to actions taken as part of our broad-based, company-wide transformation initiative.

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The PEO segment is not impacted by acquisitions, dispositions or foreign currency.

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

Consolidated revenue growth as reported 10 % 10 %

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCE S

As of December 31, 2021, cash and cash equivalents were $1.7 billion, which were primarily invested in time deposits and money market funds.

At March 31, 2022, cash and cash equivalents were $1.6 billion, which were primarily invested in time deposits and money market funds.

For corporate liquidity, we expect existing cash, cash equivalents, short-term marketable securities, cash flow from operations together with our $9.7 billion of co mmitted credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, and capital expenditures for the foreseeable future.

Our financial condition remains solid at December 31, 2021 and we have sufficient liquidity.

Our financial condition remains solid at March 31, 2022 and we have sufficient liquidity.

For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S.

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Operating, Investing and Financing Cash Flows

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the six months ended December 31, 2021 and 2020, respectively, are summarized as follows:

Six Months Ended

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the nine months ended March 31, 2022 and 2021, respectively, are summarized as follows:

Nine Months Ended

2022 2021 $ Change

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Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 18,587.4 $ 13,068.2 $ 5,519.2

Net cash flows provided by operating activities increased due to growth in our underlying business (net income adjusted for non-cash adjustments), offset by a net unfavorable change in the components of operating assets and liabilities which includes an increase in incentive compensation payments as compared to the six months ended December 31, 2020.

Net cash flows from investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $2,504.1 million, and higher payments related to acquisitions of intangibles and a business, offset by proceeds from the sale of property, plant, and equipment in the six months ended December 31, 2021.

Net cash flows from financing activities changed due to a net increase in the cash flow from client funds obligations of $1,379.4 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, and settlement of cash flow hedges in the six months ended December 31, 2020.

These were partially offset by an increase in repurchases of common stock in the six months ended December 31, 2021.

We purchased approximately 4.6 million shares of our common stock at an average price per sha re of $213.79 duri ng the six months ended December 31, 2021, as compared to purchases of 3.2 million shares at an average price per share of $149.39 during the six months ended December 31, 2020.

Net cash flows provided by operating activities decreased due to a net unfavorable change in the components of operating assets and liabilities, which includes timing on collections of accounts receivable and an increase in incentive compensation payments, offset by the growth in our underlying business (net income adjusted for non-cash adjustments), as compared to the nine months ended March 31, 2021.

Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $3,588.4 million, and higher payments related to acquisitions of intangibles and a business, offset by proceeds from the sale of property, plant, and equipment in the nine months ended March 31, 2022.

Net cash flows provided by financing activities changed due to a net increase in the cash flow from client funds obligations of $10,028.8 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, and settlement of cash flow hedges in the nine months ended March 31, 2021.

These were partially offset by an increase in repurchases of common stock in the nine months ended March 31, 2022.

We purchased approximately 7.0 million shares of our common stock at an average price per sha re o f $213.17 duri ng the nine months ended March 31, 2022, as compared to purchases of 5.7 million shares at an average price per share of $159.72 during the nine months ended March 31, 2021.

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

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

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

At March 31, 2022 and June 30, 2021, the Compa ny had no comm ercial paper borrowing outstanding.

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

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2022 2021 2022 2021

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We have successfully borrowed through the use of reverse repurchase agreements on an as-needed basis to meet short-term funding requirements related to client funds obligatio ns.

At December 31, 2021 there were no outstanding obligations related to reverse repurchase agreements.

At March 31, 2022 there were no outstanding obligations related to reverse repurchase agreements.

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

Details of the reverse repurchase agreements are as follows:

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2022 2021 2022 2021

5 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.

We had no borrowings through December 31, 2021 under the credit facilities.

We had no borrowings through March 31, 2022 under the credit facilities.

We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder and we are not aware of any conditions that would prevent us from borrowing part or all of the $9.7 billion available to us under the revolving credit agreements.

2 unchanged sentences

We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, equipment lease, and rate reduction receivables, secured predominantly by prime collateral.

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

All collateral on asset-backed securities has performed as expected through March 31, 2022.

In addition, we own U.S.

3 unchanged sentences

See Note 6 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.

Capital expenditures for the six months ended December 31, 2021 were $74.1 million, as compared to $79.7 million for the six months ended December 31, 2020.

Capital expenditures for the nine months ended March 31, 2022 were $126.3 million, as compared to $144.4 million for the nine months ended March 31, 2021.

We expect capital expenditures in fiscal 2022 to be between $200 million and $225 million, as compared to $178.3 million in fiscal 2021.

25 unchanged sentences

Details regarding our overall investment portfolio are as follows:

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2022 2021 2022 2021

8 unchanged sentences

Total 1.2 % 1.3 % 1.3 % 1.5 %

Net realized (gains)/losses on available-for-sale securities $ (0.4) $ (7.7) $ (0.5) $ (8.0)

December 31, 2021 June 30, 2021

Net unrealized pre-tax gains on available-for-sale securities $ 123.8 $ 502.2

Net realized losses/(gains) on available-for-sale securities 0.3 $ 0.4 (0.2) $ (7.6)

March 31, 2022 June 30, 2021

Net unrealized pre-tax (losses)/gains on available-for-sale securities $ (1,068.4) $ 502.2

Total available-for-sale securities at fair value $ 28,250.8 $ 24,371.7

2 unchanged sentences

This mix varies during the fiscal year and is impacted by daily interest rate changes.

The annu alized interest rate earned on our entire p ortfolio decreased from 1.7% for the six months ended December 31, 2020 to 1.3% for the six months ended December 31, 2021.

A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interes t rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $23 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2022.

A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately a $9 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2022.

The annu alized interest rate earned on our entire p ortfolio decreased from 1.5% for the nine months ended March 31, 2021 to 1.3% for the nine months ended March 31, 2022.

A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-ter m interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $19 million impact to earnings before income taxes over the ensuing twelve-month period ending March 31, 2023.

A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately a $7 million impact to earnings before income taxes over the ensuing twelve-month period ending March 31, 2023.

We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities.

11 unchanged sentences

Actual amounts and results could differ from these estimates made by management.

In addition, as the duration and severity of the COVID-19 pandemic are uncertain, certain of our estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility.

As events continue to evolve, our estimates may change materially in future periods.

Refer to Note 2 of our Consolidated Financial Statements for changes to our accounting policies effective for the fiscal 2022.

4 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 2. Management’s Discussion and Analysis