What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-01 compared with 2023-02-02 · 95 added, 91 removed, 295 unchanged (39% of the section changed)

19 unchanged sentences

the impact of new acquisitions and divestitures;

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 coronavirus ("COVID-19") pandemic;

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 coronavirus ("COVID-19" pandemic;

and supply-chain disruptions.

8 unchanged sentences

EXECUTIVE OVERVIEW

Highlights from the six months ended December 31, 2022 include:

Highlights from the nine months ended March 31, 2023 include:

9% 110 basis points

11 unchanged sentences

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

During the second quarter, we have continued to deliver a broad array of product and service enhancements to our large and growing client base.

We continued to roll out our new user experience (“UX”) to additional experiences within our key platforms, further improving ease of use for RUN, Workforce Now, and other solutions.

We further extended the reach of our Next Gen payroll engine to a broader subset of clients and prospects in our midmarket.

We continued to introduce automation and process improvements throughout our organization, all while investing across sales, product, and client service to best position ourselves for the attractive and growing global opportunity in HCM.

For the six months ended December 31, 2022, we delivered solid revenue growth of 10%, 11% organic constant currency.

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 6% for the six months ended December 31, 2022 as compared to the six months ended December 31, 2021.

PEO average worksite employees increased 10% for the six months ended December 31, 2022, as compared to the six months ended December 31, 2021.

During the third quarter, we continued to deliver a broad array of product and service enhancements to our large and growing client base, supporting our strong client satisfaction levels, positioning us for continued healthy new business bookings, and progressing us further on our modernization journey.

Among our most important product initiatives is the continued roll-out of our new user experience, which we continued to extend to additional experiences within our key platforms, further improving ease of use for RUN, Workforce Now, and other solutions.

Our sales organization, leveraging these continued product enhancements and new features, executed well as we reached a new record bookings amount in the third quarter.

Additionally, our implementation and service organization was able to support our clients during their busy year-end period while also delivering efficiency in support of our long-term sustainable and profitable growth.

For the nine months ended March 31, 2023, we delivered solid revenue growth of 9%, 11% organic constant currency.

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 5% for the nine months ended March 31, 2023 as compared to the nine months ended March 31, 2022.

PEO average worksite employees increased 8% for the nine months ended March 31, 2023, as compared to the nine months ended March 31, 2022.

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.

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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, 2022 and we remain well positioned to support our associates and our clients.

Our financial condition remains solid at March 31, 2023 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:

Three Months Ended Six Months Ended

December 31, December 31,

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

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 2023 2022

2 unchanged sentences

YoY Growth, Organic Constant Currency 10 % 11 % 11 % 10 %

Revenues for the three and six months ended December 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 an unfavorable impact of one percentage point from foreign currency.

Total revenues for the three months ended December 31, 2022 include interest on funds held for clients of $187.2 million, as compared to $106.0 million for the three months ended December 31, 2021.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 3.6% to $33.4 billion for the three months ended December 31, 2022, and an increase in our average interest rate earned to 2.2% for the three months ended December 31, 2022, as compared to 1.3% for the three months ended December 31, 2021.

Total revenues for the six months ended December 31, 2022 include interest on funds held for clients of $328.3 million, as compared to $207.1 million for the six months ended December 31, 2021.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 6.3% to $31.4 billion for the six months ended December 31, 2022, and an increase in our average interest rate earned to 2.1% for the six months ended December 31, 2022, as compared to 1.4% for the six months ended December 31, 2021.

Revenues for the three and nine months ended March 31, 2023 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 an unfavorable impact of one percentage point from foreign currency.

Total revenues for the three months ended March 31, 2023 include interest on funds held for clients of $249.4 million, as compared to $118.0 million for the three months ended March 31, 2022.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 2.7% to $39.2 billion for the three months ended March 31, 2023, and an increase in our average interest rate earned to 2.5% for the three months ended March 31, 2023, as compared to 1.2% for the three months ended March 31, 2022.

Total revenues for the nine months ended March 31, 2023 include interest on funds held for clients of $577.7 million, as compared to $325.0 million for the nine months ended March 31, 2022.

The increase in the interest earned on funds held for clients resulted from an increase in our average client funds balances of 4.9% to $34.0 billion for the nine months ended March 31, 2023, and an increase in our average interest rate earned to 2.3% for the nine months ended March 31, 2023, as compared to 1.3% for the nine months ended March 31, 2022.

Total Expenses

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

Change 2023 2022 %

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Total expenses $ 3,600.1 $ 3,348.1 8 % $ 10,208.7 $ 9,450.3 8 %

For the three and six months ended December 31, 2022, operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-throughs of $80.3 million to $944.2 million for the three months ended December 31, 2022, and an increase of $186.6 million to $1,890.0 million for the six months ended December 31, 2022.

For the three and nine months ended March 31, 2023, operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-throughs of $59.1 million to $956.3 million for the three months ended March 31, 2023, and an increase of $245.7 million to $2,846.3 million for the nine months ended March 31, 2023.

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, 2022 due to increased investments and costs to develop, support, and maintain our new and existing products.

Depreciation and amortization expenses increased for the three and six months ended December 31, 2022 due to the amortization of internally developed software for our Next Gen products and new investments in purchased software.

Selling, general and administrative expenses increased for the three and six months ended December 31, 2022 due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses, and increased travel expenses.

Interest ex pense increased fo r the three months ended December 31, 2022 due to the increase of weighted average interest rates on commercial paper issuances to 3.5% from 0.1%, coupled with a higher volume of average commercial paper borrowings, as compared to the three months ended December 31, 2021.

Interest ex pense increased fo r the six months ended December 31, 2022 due to the increase of weighted average interest rates on commercial paper issuances to 2.8% from 0.1%, coupled with a higher volume of average commercial paper borrowings, as compared to the six months ended December 31, 2021.

Systems development and programming costs increased for the three and nine months ended March 31, 2023 due to increased investments and costs to develop, support, and maintain our new and existing products.

Depreciation and amortization expenses increased for the three and nine months ended March 31, 2023 due to the amortization of internally developed software for our Next Gen products and new investments in purchased software.

Selling, general and administrative expenses increased for the three and nine months ended March 31, 2023 due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses, and a reversal of COVID-19 credit loss reserves of $26.0 million in the three and nine months ended March 31, 2022.

Interest ex pense increased fo r the three months ended March 31, 2023 due to the increase of weighted average interest rates on commercial paper issuances to 4.5% from 0.2%, coupled with a higher volume of average commercial paper borrowings, as compared to the three months ended March 31, 2022.

Interest expense increased for the nine months ended March 31, 2023 due to the increase of weighted average interest rates on commercial paper issuances to 3.1% from 0.1%, coupled with a higher volume of average commercial paper borrowings, as compared to the nine months ended March 31, 2022.

Other (Income)/Expense, net

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 $ Change 2023 2022 $ Change

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Other (income)/expense, net $ (36.3) $ (25.0) $ 11.3 $ (106.3) $ (80.4) $ 25.9

The increase is primarily driven by increases in our corporate funds, coupled with an increase in average interest rates to 2.0% for the three months ended December 31, 2022, as compared to 0.9% for the three months ended December 31, 2021, partially offset by realized losses on available for sale securities.

Interest income on corporate funds increased due to higher average interest rates of 2.7% and 2.0% for the three and nine months ended March 31, 2023, respectively, as compared to 0.7% and 0.8% for the three and nine months ended March 31, 2022, respectively.

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

Earnings Before Income Taxes ("EBIT") and Adjusted EBIT

For the three and six months ended December 31:

Three Months Ended Six Months Ended

December 31, December 31,

For the three and nine months ended March 31:

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 YoY Growth 2023 2022 YoY Growth

5 unchanged sentences

25.6 % 24.7 % 90 bps

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

Margin increased for the three and six months ended December 31, 2022, respectively, due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased interest expense, and increased selling expense.

Earnings before income taxes increased for the three and nine months ended March 31, 2023, respectively, due to the components discussed above.

Margin increased for the three and nine months ended March 31, 2023, respectively, due to increases in revenues discussed above, partially offset by increased selling expenses, increased interest expense, and a reversal of COVID-19 credit loss reserves of $26.0 million in the three and nine months ended March 31, 2022.

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

Provision for Income Taxes

The effective tax rate for the three months ended December 31, 2022 and 2021 was 23.2% and 23.7%, respectively.

The decrease in the effective tax rate is primarily due to favorable adjustments to prior year tax liabilities partially offset by a decrease in the excess tax benefits on stock-based compensation in the three months ende d December 31, 2022.

The effective tax rate for the six months ended December 31, 2022 and 2021 was 23.0%.

The rate remained flat due to favorable adjustments to prior year tax liabilities in the six months ended December 31, 2022 offset by lower reserves for uncertain tax positions and a valuation allowance release in the six months ended December 31, 2021.

The effective tax rate for the three months ended March 31, 2023 and 2022 was 23.5% and 22.0%, respectively.

The increase is primarily due to an intercompany transfer of certain assets in the three months ended March 31, 2022.

and higher reserves for uncertain tax positions in the three months ended March 31, 2023.

The effective tax rate for the nine months ended March 31, 2023 and 2022 was 23.2% and 22.6%, respectively.

The increase is primarily due to an intercompany transfer of certain assets in the nine months ended March 31, 2022 and higher reserves for uncertain tax positions, partially offset by favorable adjustments to prior year tax liabilities in the nine months ended March 31, 2023.

Adjusted Provision for Income Taxes

The adjusted effective tax rate for the three months ended March 31, 2023 and 2022 was 23.5% and 22.0%, respectively.

The adjusted effective tax rate for the nine months ended March 31, 2023 and 2022 was 23.2% and 22.6%, 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, Unadjusted and Adjusted

For the three and six months ended December 31:

Three Months Ended Six Months Ended

December 31, December 31,

For the three and nine months ended March 31:

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 YoY Growth 2023 2022 YoY Growth

3 unchanged sentences

Adjusted diluted EPS $ 2.52 $ 2.21 14 % $ 6.34 $ 5.51 15 %

For the three and six months ended December 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 December 31, 2022, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 0.9 million shares during the three months ended December 31, 2022, and 2.0 million shares during the three months ended December 31, 2021, partially offset by the issuances of shares under our employee benefit plans.

For the six months ended December 31, 2022, in addition to the increase in net earnings, 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 six months ended December 31, 2022, and 4.6 million shares during the six months ended December 31, 2021, partially offset by the issuances of shares under our employee benefit plans.

For the three and nine months ended March 31, 2023, 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, 2023, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 1.2 million shares during the three months ended March 31, 2023, and 2.3 million shares during the three months ended March 31, 2022, partially offset by the issuances of shares under our employee benefit plans.

For the nine months ended March 31, 2023, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 3.5 million shares during the nine months ended March 31, 2023, and 7.0 million shares during the nine months ended March 31, 2022, partially offset by the issuances of shares under our employee benefit plans.

ANALYSIS OF REPORTABLE SEGMENTS

Three Months Ended % Change Six Months Ended % Change

December 31, December 31,

Three Months Ended % Change Nine Months Ended % Change

March 31, March 31,

Reported Organic constant currency 2023 2022 As

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Three Months Ended %

Change Six Months Ended %

December 31, December 31,

Change Nine Months Ended %

March 31, March 31,

2023 2022 As Reported 2023 2022 As

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$ 1,364.0 $ 1,189.9 15 % $ 3,432.0 $ 3,000.7 14 %

Three Months Ended Six Months Ended

December 31, December 31,

Three Months Ended Nine Months Ended

March 31, March 31,

2023 2022 YoY Growth 2023 2022 YoY Growth

5 unchanged sentences

Employer Services

Revenues increased for the three months ended December 31, 2022 due to strong retention and new business started from New Business Bookings, an increase in our pays per control of 5%, and an increase in interest earned on funds held for clients, partially offset by an unfavorable impact of two percentage points from foreign currency.

Revenues increased for the six months ended December 31, 2022 due to strong retention and new business started from New Business Bookings in prior quarters, an increase in our pays per control of 6%, and an increase in interest earned on funds held for clients, partially offset by an unfavorable impact of two percentage points from foreign currency.

Revenues increased for the three months ended March 31, 2023 due to strong client retention and new business started from New Business Bookings, an increase in our pays per control of 4%, and an increase in interest earned on funds held for clients, partially offset by an unfavorable impact of one percentage point from foreign currency.

Revenues increased for the nine months ended March 31, 2023 due to strong client retention and new business started from New Business Bookings, an increase in our pays per control of 5%, and an increase in interest earned on funds held for clients, partially offset by an unfavorable impact of two percentage points from foreign currency.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased 14% and 12% for the three and six months ended December 31, 2022, respectively, due to increased revenues discussed above, partially offset by increases in expenses.

Employer Services' earnings before income taxes increased 14% and 13% for the three and nine months ended March 31, 2023, respectively, 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 continued investments and costs to develop, support, and maintain our new and existing products.

Employer Services' margin increased for the three and six months ended December 31, 2022 due to the increases in revenues discussed above, operating efficiencies for costs of servicing our clients on growing revenue and costs to develop, support and maintain our products, partially offset by increased selling expenses.

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, 2023 due to the increases in revenues discussed above, partially offset by increased selling expenses, and a reversal of COVID-19 credit loss reserves of $26.0 million in the three and nine months ended March 31, 2022.

Three Months Ended Change Nine Months Ended Change

March 31, March 31,

2023 2022 $ % 2023 2022 $ %

2 unchanged sentences

PEO Services' revenues excluding zero-margin benefits pass-throughs $ 635.7 $ 616.6 $ 19.1 3 % $ 1,678.4 $ 1,536.1 $ 142.3 9 %

PEO Services' revenue increased for the three and six months ended December 31, 2022, due to increases in average worksite employees of 8% and 10% for the three and six months ended December 31, 2022, respectively, as compared to the three and six months ended December 31, 2021 and due to an increase in zero-margin benefits pass-throughs.

PEO Services' revenue increased for the three and nine months ended March 31, 2023, due to increases in average worksite employees of 3% and 8% for the three and nine months ended March 31, 2023, respectively, as compared to the three and nine months ended March 31, 2022 and due to an increase in zero-margin benefits pass-throughs.

Earnings before Income Taxes

PEO Services' earnings before income taxes increased 20% for the three and six months ended December 31, 2022 due to the increased revenues discussed above and a favorable impact from operating efficiencies, partially offset by increased selling expense and an increase in zero-margin benefits pass-through costs of $80.3 million and $186.6 million for the three and six months ended December 31, 2022, respectively.

PEO Services' margin increased for the three and six months ended December 31, 2022 due to the increase in revenues discussed above, a favorable impact of zero-margin benefits pass-throughs and operating efficiencies, partially offset by increases in selling expenses.

PEO Services' earnings before income taxes increased 15% and 18% for the three and nine months ended March 31, 2023, respectively, due to the increased revenues discussed above, lower state unemployment insurance costs, and changes in our estimated losses related to ADP Indemnity, partially offset by increased selling expenses, and an increase in zero-margin benefits pass-through costs of $59.1 million and $245.7 million for the three and nine months ended March 31, 2023, respectively.

PEO Services' margin increased for the three and nine months ended March 31, 2023 due to the increase in revenues discussed above, lower state unemployment insurance costs, and changes in our estimated losses related to ADP Indemnity, partially offset by increases in zero-margin benefits pass-throughs, and increases in selling expenses.

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 $0.6 million and $15.2 million for the three and six months ended December 31, 2022, respectively, as compared to approximately $3.7 million and $14.6 million for the three and six months ended December 31, 2021, which was primarily a result of changes in our estimated actuarial losses.

ADP Indemnity recorded a pre-tax benefit of approximately $16.9 million and $32.1 million for the three and nine months ended March 31, 2023, respectively, as compared to approximately $6.9 million and $21.5 million for the three and nine months ended March 31, 2022, which was primarily a result of changes in our estimated actuarial losses.

In July 2022, ADP Indemnity paid a premium of $284 million t o enter into a reinsurance arrangement with Chubb Limited to cover substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year on terms substantially similar to the fiscal 2022 reinsurance policy.

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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,

2023 2022 As Reported 2023 2022 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 and six months ended December 31, 2022, transformation initiatives include consulting costs relating to our company wide transformation initiatives, partially offset by net reversals relating to severance.

(b) In the three and nine months ended March 31, 2023, transformation initiatives include consulting costs relating to our company wide transformation initiatives, partially offset by net reversals relating to severance.

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 9 % 9 %

7 unchanged sentences

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCE S

At December 31, 2022, cash and cash equivalents were $1.3 billion, which were primarily invested in time deposits and money market funds.

At March 31, 2023, cash and cash equivalents were $1.8 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, 2022 and we have sufficient liquidity.

Our financial condition remains solid at March 31, 2023 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, 2022 and 2021, 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, 2023 and 2022, respectively, are summarized as follows:

Nine Months Ended

2023 2022 $ Change

5 unchanged sentences

Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ (4,742.4) $ 18,587.4 $ (23,329.8)

Net cash flows provided by operating activities increased due to growth in our underlying business (net income adjusted for non-cash adjustments), and a net favorable change in the components of operating assets and liabilities, primarily due to timing on collections of accounts receivable and a decrease in incentive compensation payments, as compared to the six months ended December 31, 2021.

Net cash flows used in investing activities changed due to the timing of purchases and proceeds of corporate and client funds marketable securities of $3,987.4 million.

Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $19,512.6 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, net payments related to reverse repurchase agreements, and an increase in dividends paid.

These were partially offset by a decrease in repurchases of common stock in the six months ended December 31, 2022.

We purchased approximately 2.3 million shares of our common stock at an average price per sha re o f $234.87 duri ng the six months ended December 31, 2022, as compared to purchases of 4.6 million shares at an average price per share of $213.79 during the six months ended December 31, 2021.

Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $28,441.0 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, an increase in dividends paid, and net payments related to reverse repurchase agreements.

These were partially offset by a decrease in repurchases of common stock in the nine months ended March 31, 2023.

We purchased approximately 3.5 million shares of our common stock at an average price per sha re o f $231.45 duri ng the nine months ended March 31, 2023, as compared to purchases of 7.0 million shares at an average price per share of $213.17 during the nine months ended March 31, 2022.

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

At March 31, 2023 and June 30, 2022, 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,

2023 2022 2023 2022

1 unchanged sentence

Weighted average interest rates 4.5 % 0.1 % 3.1 % 0.1 %

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

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

Our 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.

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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, 2022, there were no outstanding obligations related to repurchase agreements.

At March 31, 2023, there were no outstanding obligations related to repurchase agreements.

At June 30, 2022, the Company had $136.4 million of outstanding obligations related to 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,

2023 2022 2023 2022

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, 2022 under the credit facilities.

We had no borrowings through March 31, 2023 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.

1 unchanged sentence

Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities.

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, 2022.

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

All collateral on asset-backed securities has performed as expected through March 31, 2023.

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, 2022 were $91.2 million , as compared to $74.1 million for the six months ended December 31, 2021.

Capital expenditures for the nine months ended March 31, 2023 were $142.8 million , as compared to $126.3 million for the nine months ended March 31, 2022.

We expect capital expenditures in fiscal 2023 to be between $175 million and $200 million, as compared to $177.1 million in fiscal 2022.

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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,

2023 2022 2023 2022

9 unchanged sentences

Net realized losses/(gains) on available-for-sale securities $ 0.9 $ 0.3 $ 13.9 $ (0.2)

December 31, 2022 June 30, 2022

March 31, 2023 June 30, 2022

Net unrealized pre-tax (losses)/gains on available-for-sale securities $ (1,908.4) $ (1,721.4)

3 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 increased from 1.3% for the six months ended December 31, 2021 to 2.0% for the six months ended December 31, 2022.

A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $13 million impact to earnings before income taxes over the ensuing twelve-month period ending December 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 $3 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2023.

The annu alized interest rate earned on our entire p ortfolio increased from 1.3% for the nine months ended March 31, 2022 to 2.2% for the nine months ended March 31, 2023.

A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $12 million impact to earnings before income taxes over the ensuing twelve-month period ending March 31, 2024.

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 $5 million impact to earnings before income taxes over the ensuing twelve-month period ending March 31, 2024.

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.

17 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