What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-03 compared with 2021-08-04 · 112 added, 120 removed, 1084 unchanged (18% of the section changed)

9 unchanged sentences

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 3, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, effective July 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases (ASC 842), under the optional transition method.

Basis for Opinion

5 unchanged sentences

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risk of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

12 unchanged sentences

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

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

In turn, a high degree of auditor judgment and an increased extent of audit effort were required when performing

audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of revenue and operating margin and the selection of the weighted average cost of capital, including the involvement of our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

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/s/ Deloitte & Touche LLP

Parsippany, New Jersey

Morristown, New Jersey

August 3, 2022

We have served as the Company’s auditor since 1968.

Automatic Data Processing, Inc.

and Subsidiaries

Statements of Consolidated Earnings

24 unchanged sentences

See notes to the Consolidated Financial Statements.

Automatic Data Processing, Inc.

and Subsidiaries

Statements of Consolidated Comprehensive Income

2 unchanged sentences

Net earnings $ 2,948.9 $ 2,598.5 $ 2,466.5

Other comprehensive income/(loss):

Other comprehensive (loss)/income:

Currency translation adjustments ( 127.4 ) 95.4 ( 53.0 )

Unrealized net gains/(losses) on available-for-sale securities ( 363.3 ) 602.2 642.4

Unrealized net (losses)/gains on available-for-sale securities ( 2,228.0 ) ( 363.3 ) 602.2

Tax effect 503.7 82.6 ( 136.4 )

9 unchanged sentences

Tax effect ( 4.9 ) ( 2.7 ) 3.1

Other comprehensive income/(loss), net of tax 25.4 242.5 422.5

Other comprehensive (loss)/income, net of tax ( 2,004.3 ) 25.4 242.5

Comprehensive income $ 944.6 $ 2,623.9 $ 2,709.0

See notes to the Consolidated Financial Statements.

Automatic Data Processing, Inc.

and Subsidiaries

Consolidated Balance Sheets

25 unchanged sentences

Obligations under reverse repurchase agreements (A) 136.4 23.5

Short-term debt — 1,001.8

Income taxes payable 38.4 58.2

22 unchanged sentences

( 17,335.4 ) ( 15,386.8 )

Accumulated other comprehensive income (loss) 10.6 ( 14.8 )

Accumulated other comprehensive (loss)/income ( 1,993.7 ) 10.6

Total stockholders’ equity 3,225.3 5,670.1

Total liabilities and stockholders’ equity $ 63,068.2 $ 48,772.5

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

(A) As of June 30, 2022, $ 14.3 million of short-term marketable securities and $ 122.1 million of long-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 8).

See notes to the Consolidated Financial Statements.

Automatic Data Processing, Inc.

and Subsidiaries

Statements of Consolidated Stockholders' Equity

11 unchanged sentences

— — — ( 1,523.9 ) — —

Other — — — ( 6.9 ) — —

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

7 unchanged sentences

— — — ( 1,583.7 ) — —

Other — — — ( 6.9 ) — —

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

Net earnings — — — 2,948.9 — —

Other comprehensive income — — — — — 25.4

Other comprehensive loss — — — — — ( 2,004.3 )

Stock-based compensation expense — — 180.4 — — —

6 unchanged sentences

See notes to the Consolidated Financial Statements

Automatic Data Processing, Inc.

and Subsidiaries

Statements of Consolidated Cash Flows

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Net amortization of premiums and accretion of discounts on available-for-sale securities 101.0 69.5 50.2

Impairment of assets 19.9 29.9 12.1

Gain on sale of assets ( 9.8 ) ( 6.0 ) ( 19.8 )

Other 32.7 45.3 89.3

2 unchanged sentences

Increase in other assets ( 1,258.4 ) ( 1,029.4 ) ( 910.4 )

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

(Decrease)/Increase in accounts payable ( 16.4 ) 36.9 ( 18.3 )

Increase/(Decrease) in accrued expenses and other liabilities 123.0 394.9 ( 77.5 )

17 unchanged sentences

Net proceeds/(payments) related to reverse repurchase agreements 128.3 9.9 ( 248.4 )

Other — — ( 5.8 )

Net cash flows provided by/(used in) financing activities 13,653.4 6,437.5 ( 5,890.6 )

12 unchanged sentences

See notes to the Consolidated Financial Statements.

Notes to Consolidated Financial Statements

(Tabular dollars in millions, except per share amounts)

Automatic Data Processing, Inc.

and Subsidiaries

Notes to the Consolidated Financial Statements

(Tabular dollars in millions, except per share amounts or where otherwise stated)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

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

GAAP requires management to make estimates and

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

Consolidated Financial Statements and footnotes thereto.

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

Actual results may differ from those estimates.

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

presentation.

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

Description of Business.

25 unchanged sentences

Incremental Costs of Obtaining a Contract

Incremental costs of obtaining a contract (e.g., sales commissions) that are expected to be recovered are capitalized and amortized on a straight-line basis over a period of three to eight years , depending on the Company's business unit.

Incremental costs of obtaining a contract include only those costs the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained.

39 unchanged sentences

The Company had no available-for-sale securities included in Level 1 and Level 3 at June 30, 2022.

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

The Company issued three series of fixed-rate notes with staggered maturities of 7 and 10 -years totaling $ 3.0 billion (collectively the “Notes”).

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

7 unchanged sentences

Property, plant and equipment is stated at cost less accumulated depreciation on the Consolidated Balance Sheets.

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

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

improvements.

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

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

The estimated useful lives of assets are primarily as follows:

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Judgment is required in addressing the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof).

The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities.

A change in the assessment of the outcomes of such matters could materially impact our Consolidated Financial Statements.

3 unchanged sentences

Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes.

As of June 30, 2021 and 2020, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $ 99.9 million and $ 62.3 million, respectively.

If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions.

See Note 11 for additional details.

As of June 30, 2022 and 2021, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $ 98.1 million a nd $ 99.9 million, respectively.

Workers' Compensation Costs.

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

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

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

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

5 unchanged sentences

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.

In fiscal 2022, the Company early adopted accounting standard update ("ASU") 2021-08, "Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)".

The adoption of this guidance 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:

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

The Company believes

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

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

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

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

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

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

This revenue is primarily driven by PEO.

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

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

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

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:

Types of Revenues 2022 2021 2020

32 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 twelve months ended June 30, 2021 were as follows:

Changes in deferred revenue related to set up fees for the fiscal year ended June 30, 2022 were as follows:

Contract Liability

10 unchanged sentences

Total deferred contract costs (1) $ 2,579.7 $ 2,498.2

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

(1) The amount of total deferred costs amortized during the fiscal years ended June 30, 2022, June 30, 2021, and June 30, 2020 were $ 955.2 million, $ 935.3 million, and $ 915.0 million, respectively.

Deferred costs are periodically reviewed for impairment.

4 unchanged sentences

Interest income on corporate funds $ ( 41.0 ) $ ( 36.5 ) $ ( 84.5 )

Realized (gains)/losses on available-for-sale securities, net ( 11.3 ) ( 12.9 ) 0.9

Realized losses/(gains) on available-for-sale securities, net 4.4 ( 11.3 ) ( 12.9 )

Impairment of assets 23.0 19.9 29.9

Gain on sale of assets ( 7.5 ) ( 9.8 ) ( 6.0 )

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

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

Non-service components of pension income, net ( 61.7 ) ( 58.6 ) ( 74.5 )

Other (income)/expense, net $ ( 82.8 ) $ ( 96.3 ) $ ( 148.0 )

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

In fiscal 2022, the Company recorded impairment charges of $ 23.0 million which is comprised of a write down of $ 12.1 million related to software and customer lists which were determined to have no future use and impairment charges of $ 10.9 million related to operating right-of-use assets associated with exiting certain leases early.

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

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

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

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

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

prior years and subsequently sold during fiscal 2019.

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

CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS

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

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

Treasury securities

4,036.9 64.8 ( 9.3 ) 4,092.4

government agency securities 1,128.2 35.6 — 1,163.8

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

Canadian government obligations and

1 unchanged sentence

1,542.3 15.0 ( 9.0 ) 1,548.3

Commercial mortgage-backed securities 814.3 53.9 — 868.2

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

Canadian provincial bonds 956.3 22.7 ( 5.3 ) 973.7

Commercial mortgage-backed securities 793.4 41.2 — 834.6

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

34 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 June 30, 2021, Corporate bonds include investment-grade debt securities, with a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from July 2021 through July 2031.

At June 30, 2022, Corporate bonds include investment-grade debt securities, with a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from July 2022 through April 2032.

At June 30, 2022, asset-backed securities include AAA-rated senior tranches of securities with predominately prime collateral of fixed-rate auto loan, credit card, equipment lease and rate reduction receivables with fair values of $ 973.1 million, $ 685.9 million, $ 233.8 million, and $ 44.2 million, respectively.

5 unchanged sentences

government agency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $ 980.3 million and $ 524.4 million, respectively.

government agency securities represent senior, unsecured, non-callable debt that primarily carry ratings of Aaa by Moody's and AA+ by Standard & Poor's, with maturities ranging from July 2021 through June 2031.

At June 30, 2022, U.S.

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

Approximately 72 % of the available-for-sale securities held a AAA-rating or AA-rating at June 30, 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 June 30, 2022.

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The Company has entered into operating lease agreements for facilities and equipment.

The Company's leases have remaining lease terms of up to approximately eleven years .

The Company's leases have remaining lease terms of up to approximately ten years .

The components of operating lease expense were as follows:

2022 2021 2020

Operating lease cost $ 144.7 $ 157.8 $ 163.7

3 unchanged sentences

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

2022 2021 2020

Cash paid for operating lease liabilities $ 127.6 $ 142.2 $ 224.7

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

Additions and other adjustments ( 2.5 ) — ( 2.5 )

Currency translation adjustments 29.0 — 29.0

Balance at June 30, 2021 $ 2,333.6 $ 4.8 $ 2,338.4

Additions and other adjustments 11.1 — 11.1

Currency translation adjustments ( 49.0 ) — ( 49.0 )

24 unchanged sentences

SHORT TERM FINANCING

The Company has a $ 3.75 billion, 364 -day credit agreement that matures in June 2022 with a one year term-out option.

The Company also has a $ 2.75 billion five year credit facility that matures in June 2024 that also contains an accordion feature under which the aggregate commitment can be increased by $ 500 million, subject to the availability of additional commitments.

The Company has a $ 3.75 billion, 364 -day credit agreement with a one-year term-out option that was scheduled to mature in June 2022 and was amended to mature in July 2022.

On July 1, 2022, the company entered into a new $ 3.75 billion 364 -day credit agreement that matures in June 2023 with a one year term-out option to replace the maturing facility.

The interest rate applicable to committed borrowings under each agreement is tied to SOFR, the effective funds rate, or the prime rate depending up on the notification provided by the Company to the syndicated financial institutions prior to borrowing.

Th e Company also has a $ 2.75 billion five year credit facility that matures in June 2024 that also contains an accordion feature under which the aggregate commitment can be increased by $ 500 million, subject to the availability of additional commitments.

In addition, the Company has a five year $ 3.2 billion credit facility maturing in June 2026 that contains an accordion feature under which the aggregate commitment can be increased by $ 500 million, subject to the availability of additional commitments.

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The Company is also required to pay facility fees on the credit agreements.

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

The Company had no borrowings through June 30, 2021 and 2020 under the credit agreements.

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

The Company had no b orrowings through June 30, 2022 and 2021 under the credit agreements.

The Company's U.S.

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

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

At June 30, 2022 and June 30, 2021, the Company had no co mmercial paper borrowing outstanding.

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

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Weighted average interest rates 0.4 % 0.1 %

Weighted average maturity (approximately in days) 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 June 30, 2021 and 2020, there were $ 23.5 million and $ 13.6 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

At June 30, 2022 and 2021, the Company had $ 136.4 million and $ 23.5 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

Details of the reverse repurchase agreements are as follows:

2 unchanged sentences

Weighted average interest rates 0.7 % 0.2 %

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.

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

In addition, the Company terminated several derivative contracts in place to hedge exposure in changes in benchmark interest rates for the senior notes issued in August 2020 with an aggregate notional amount totaling $ 1.0 billion (of which $ 400.0 million were entered into during fiscal year 2020 and $ 600.0 million were entered into on the day of issuance).

Since these derivative contracts were classified as cash flow hedges, the unamortized loss of $ 43.6 million was deferred in accumulated other comprehensive income (loss) and will be amortized to earnings over the life of the senior notes due in 2030 as the interest payments are made.

The principal amounts and associated effective interest rates of the Notes and other debt as of June 30, 2022 and 2021 are as follows:

4 unchanged sentences

1.83 % 1,000.0 1,000.0

Fixed-rate 1.250 % notes due September 1, 2030

1.83 % 1,000.0 —

Fixed-rate 1.700 % notes due May 15, 2028

18 unchanged sentences

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.

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.

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The Company repurchased 9.2 million shares in fiscal 2022 as compared to 8.2 million shares repurchased in fiscal 2021.

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.

employee benefit plan activity, and market conditions.

Cash payments related to the settlement of vested time-based restricted stock units and performance-based restricted stock units were approximately 22.1 million, 10.7 million, and 34.6 million during fiscal years 2022, 2021, and 2020, respectively.

76 unchanged sentences

Interest cost 52.3 51.4

Actuarial loss ( 11.8 ) 210.7

Actuarial loss (a) ( 319.2 ) ( 11.8 )

Currency translation adjustments ( 22.5 ) 25.1

3 unchanged sentences

Funded status - plan assets less benefit obligations $ 21.5 $ 157.0

(a) The actuarial loss for fiscal 2022 was primarily due to lower than expected return on assets.

The amounts recognized on the Consolidated Balance Sheets as of June 30, 2022 and 2021 consisted of:

5 unchanged sentences

The accumulated benefit obligation for all defined benefit pension plans was $ 1,765.3 million and $ 2,135.0 million at June 30, 2022 and 2021, respectively.

The Company's pension plans with accumulated benefit obligations in excess of plan assets as of June 30, 2021 and 2020 had the following projected benefit obligation, accumulated benefit obligation, and fair value of plan assets:

The Company's pension plans with projected benefit obligations in excess of plan assets as of June 30, 2022 and 2021 had the following projected benefit obligation and fair value of plan assets:

June 30, 2022 2021

Projected benefit obligation $ 145.5 $ 182.2

Fair value of plan assets $ 18.5 $ 18.7

The Company's pension plans with accumulated benefit obligations in excess of plan assets as of June 30, 2022 and 2021 had the following accumulated benefit obligation and fair value of plan assets:

June 30, 2022 2021

Accumulated benefit obligation $ 132.0 $ 168.3

10 unchanged sentences

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

In fiscal 2018, the Company offered a Voluntary Early Retirement Program (“VERP”) to certain eligible U.S.

based associates aged 55 or above with at least 10 years of service.

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

The net actuarial loss and prior service cost for the defined benefit pension plans that are included in accumulated other comprehensive income (loss) that have not yet been recognized as components of net periodic benefit cost are $ 340.9 million and $ 7.4 million, respectively, at June 30, 2022.

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

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

Assumptions used to determine the actuarial present value of benefit obligations were:

1 unchanged sentence

Discount rate 4.60 % 2.55 %

Increase in compensation levels N/A 4.00 %

Interest crediting rate 3.25 % 3.25 %

Increase in compensation levels N/A N/A

Assumptions used to determine the net pension expense generally were:

1 unchanged sentence

Discount rate 2.55 % 2.45 % 3.40 %

Interest crediting rate 3.25 % 3.25 % 3.25 %

Expected long-term rate of return on assets 6.75 % 6.75 % 6.75 %

Increase in compensation levels 4.00 % 4.00 % 4.00 %

Increase in compensation levels N/A 4.00 % 4.00 %

The discount rate is based upon published rates for high-quality fixed-income investments that produce cash flows that approximate the timing and amount of expected future benefit payments.

The interest crediting rate is based on the current and expected future ten-year U.S.

Treasury rates and a minimum of 3.25 %.

The expected long-term rate of return on assets is determined based on historical and expected future rates of return on plan assets considering the target asset mix and the long-term investment strategy.

21 unchanged sentences

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

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

short selling of securities.

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

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

61 unchanged sentences

The effective tax rate in fiscal 2022 and 2021 was 22.5 % and 22.7 %, respectively.

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

The decrease in the effective tax rate is primarily due to a favorable earnings mix, lower reserves for uncertain tax positions, and an intercompany transfer of certain assets in fiscal 2022, partially offset by favorable adjustments to prior year tax liabilities and a foreign tax election in fiscal 2021.

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

The decrease in the effective tax rate is primarily due to the release of a valuation allowance related to foreign tax credit carryforwards, a reduction in the operating tax rate due to the mix between domestic and foreign earnings, the benefit of a foreign tax law change and lower reserves for uncertain tax positions during fiscal 2020 partially offset by favorable adjustments to prior year tax liabilities during fiscal 2019.

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

5 unchanged sentences

Net operating losses 34.1 46.3

Retirement benefits — 46.0

Prepaid royalty 33.7 —

Unrealized investment losses, net 407.2 —

Other 38.3 34.7

10 unchanged sentences

Deferred tax liabilities 665.5 806.2

Net deferred tax liabilities $ 434.7 $ 693.2

Net deferred tax (assets)/liabilities $ ( 90.4 ) $ 434.7

There are $ 157.4 million and $ 48.3 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 2022 and 2021, respectively.

1 unchanged sentence

As of June 30, 2022, it is not practicable to estimate the unrecognized tax liability that would occur upon distribution.

The Company has estimated foreign net operating loss carry-forwards of approximately $ 61.8 million as of June 30, 2021, of which $ 1.1 million expire through June 2031 and $ 60.7 million have an indefinite utilization period.

The Company has estimated foreign net operating loss carry-forwards of approximately $ 55.1 million as of June 30, 2022, of which $ 1.5 million expire throu gh June 2032 and $ 53.6 million h ave an indefinite utilization period.

As of June 30, 2022, the Company has approximately $ 23.8 million of federal net operating loss carry-forwards from acquired companies.

18 unchanged sentences

During the fiscal years 2022, 2021, and 2020, the Company recorded interest expense of $ 3.5 million, $ 10.8 million, and $ 1.6 million, respectively.

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

Penalties recorded during fiscal years 2022 and 2020 were not significant.

During fiscal year 2021, the Company recorded penalties of $ 0.3 million .

At June 30, 2022, the Company had accrued interest of $ 21.9 million recorded on the Consolidated Balance Sheets, of which $ 4.5 million was recorded within income taxes payable, and the remainder was recorded within other liabilities.

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

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

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

At June 30, 2022 and June 30, 2021, the Company’s accrued penalties of $ 0.3 million and $ 0.3 million, respectively, were recorded on the Consolidated Balance Sheets within income taxes payable.

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

3 unchanged sentences

Illinois 2019 - 2020

Arizona 2018 - 2020

Massachusetts 2013 - 2014, 2016 - 2018

Texas 2016 - 2018

Michigan 2012 - 2018

New York State 2016 - 2018

9 unchanged sentences

COMMITMENTS AND CONTINGENCIES

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

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

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

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

The Company does not expect that any of the remaining cases against ADP's clients will result in any material liabilities to the Company.

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

As of June 30, 2022 , the Company has purchase commitm ents of approximately $ 796.7 million, including a reinsurance premium with Chubb for the fiscal 2023 policy year, as well as obligations related to software license agreements and purchase and maintenance agreements on our software, equipment, and other assets, of which $ 455.0 million relates to fiscal 2023, $ 282.2 million relates to the fiscal years ending June 30, 2024 through fiscal 2025 and the remaining relates to fiscal years ending June 30, 2026 through fiscal 2027.

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

2 unchanged sentences

The complaints seek statutory and other unspecified monetary damages, injunctive relief and attorney’s fees.

These claims are still in their earliest stages and the Company is unable to estimate any reasonably possible loss, or range of loss, with respect to these matters.

These claims are still in their early stages and the Company is unable to estimate any reasonably possible loss, or range of loss, with respect to these matters.

The Company intends to vigorously defend against these lawsuits.

8 unchanged sentences

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

Other comprehensive income (loss) results from items deferred on the Consolidated Balance Sheets in stockholders' equity.

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

Other comprehensive (loss)/income results from items deferred on the Consolidated Balance Sheets in stockholders' equity.

Other comprehensive (loss)/income was $( 2,004.3 ) million, $ 25.4 million, and $ 242.5 million in fiscal 2022, 2021, and 2020, respectively.

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

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

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 )

6 unchanged sentences

Tax effect — 82.6 0.8 ( 69.0 ) 14.4

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

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

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

13 unchanged sentences

Employer Services and PEO Services.

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

Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons.

Other costs are recorded based on management responsibility.

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.

The Company's Chief Operating Decision Maker does not review assets at the reportable segment level, hence segment disclosure relating to total assets has not been provided .

Employer Services PEO Services Other Total

2 unchanged sentences

Earnings before income taxes 3,406.3 871.2 ( 473.4 ) 3,804.1

Assets 50,279.3 1,543.4 ( 3,050.2 ) 48,772.5

Capital expenditures 125.4 — 51.7 177.1

3 unchanged sentences

Earnings before income taxes 3,052.1 718.8 ( 409.7 ) 3,361.2

Assets 37,071.7 1,443.2 650.6 39,165.5

Capital expenditures 116.7 — 61.6 178.3

3 unchanged sentences

Earnings before income taxes 3,058.2 609.3 ( 484.9 ) 3,182.6

Assets 34,606.3 1,584.1 5,697.3 41,887.7

Capital expenditures 115.7 — 52.6 168.3

12 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-K

Item 8. Financial Statements and Supplementary Data