What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-08-03 compared with 2022-08-03 · 88 added, 111 removed, 323 unchanged (38% of the section changed)

11 unchanged sentences

the success of our new solutions;

our ability to respond successfully to changes in technology, including artificial intelligence;

compliance with existing or new legislation or regulations;

changes in, or interpretations of, existing legislation or regulations;

changes in, or interpretations of, existing legislation or

overall market, political and economic conditions, including interest rate and foreign currency trends and inflation;

3 unchanged sentences

employment and wage levels;

changes in technology;

availability of skilled associates;

1 unchanged sentence

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

the impact of any uncertainties related to major natural disasters or catastrophic events, including the coronaviru s ( “ COVID-19 ” ) pandemic;

the impact of any uncertainties related to major natural disasters or catastrophic events;

and supply-chain disruptions.

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$1.9B Dividends | $1.1B Share Repurchases

We are the leading provider of cloud-based HCM technology solutions to employers around the world.

Through our extensive suite of products, coupled with industry and compliance expertise, we help our clients navigate a highly dynamic world of work in order to give them peace-of-mind and reduce the time and effort they allocate to non-core tasks.

This, in turn, allows our clients to better focus on what matters most to them – running their businesses.

Over the decades since pioneering our industry, we have reshaped HCM time and again by continuously innovating across our technology platforms and service solutions.

Our commitment to innovation is continuous amid challenging business and operating environments – whether it be a global recession or bull market, an international conflict or global pandemic.

We believe businesses, our clients, serve as a force for progress, and we remain committed to rethinking a better, more personalized world at work to help our clients and their workers achieve their full potential.

That commitment underpins our drive to innovate across our portfolio in order to deliver sustainable, profitable growth.

During the fiscal year, we made significant progress on the roll-out of a new unified user experience ("UX") across our strategic products and solutions.

We transitioned hundreds of thousands of clients across our RUN, iHCM, and next-gen HCM client bases over to the new UX, generating positive feedback from this transition to even more intuitive HCM workflows.

We continue to advance all of our key platforms, with Workforce Now being especially critical to our differentiation and growth.

Workforce Now continues building traction in the lower end of the U.S.

enterprise market and was instrumental to

ADP being rated an overall "Customer's Choice" provider for the first time in Gartner's annual "Voice of the Customer" study.

In addition to beginning the roll-out of the new UX, this year we continued to make progress on the roll-out of our next-gen payroll solution to a growing portion of our new Workforce Now clients, and we believe these two major enhancements will help keep Workforce Now at the forefront of the industry.

We also made exciting enhancements to other solutions during the fourth quarter.

We started offering self-enrollment with full digital wallet capabilities within the Wisely program, allowing for a more frictionless experience for workers that enables them to more easily transition to our digital payment offering.

We expanded our Earned Wage Access solution by offering a seamless, one-application solution for Wisely members, which enables employees to receive portions of their earned wages prior to paydate at no cost.

We will also be launching "Voice of the Employee", a new employee survey and listening tool, which will help our clients seamlessly capture employee feedback and sentiments across various HR categories during the employee lifecycle, which is critical in a labor market where listening to their employees can help our clients differentiate themselves and better compete in the marketplace.

We continue to drive innovation by anticipating our clients' evolving needs and always designing for people as the world of work changes.

We lead the HCM industry by driving growth through our strategic, cloud-based HCM solutions and developing innovations like our next-gen platforms.

We further enable these solutions by supplementing them with organic, differentiated investments such as the ADP Datacloud and ADP Marketplace, and through our compliance expertise.

For fiscal 2022, we delivered strong revenue growth of 10%.

In addition, Employer Services achieved record New Business Bookings and near-record-level retention of 92.1%.

The PEO average number of Worksite Employees increased 15% for fiscal 2022.

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 fiscal 2022.

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

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

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

We see tremendous growth opportunity ahead as we focus on our three key Strategic Priorities:

leading with best-in-class HCM technology, providing unparalleled expertise and outsourcing, and leveraging our global scale for the benefit of our clients.

Executing on our Strategic Priorities will be critical to enabling our growth in the years ahead.

During the fiscal year we drove strong progress across a number of key measures and in support of our overall Strategic Priorities.

We crossed a major milestone, surpassing the 1 million client mark, driven by continued enhancements to our key solutions like RUN and Workforce Now.

We continued the deployment of our unified User Experience to key portions of our portfolio such as the RUN mobile app.

We were awarded Top HR Product for the 8 th consecutive year at the annual HR Tech Conference, in recognition for our recently launched Intelligent Self Service Solution.

And our HR Outsourcing businesses continued to grow, now with over 3 million worksite employees served.

For fiscal 2023, we delivered solid revenue growth of 9%, 10% organic constant currency.

PEO average worksite employees increased 6% for the year ended June 30, 2023, as compared to the year ended June 30, 2022.

Additionally, our strong ES new business bookings performance resulted in full year fiscal 2023 growth of 10%, and client satisfaction gains resulted in a full year ES client revenue retention rate of 92.2%, equal to the highest level we have ever reported.

We believe these results are largely attributable to improvements made to our platforms and service over multiple years.

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 modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments, our long 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, longer term strategy, and 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.

ADP was 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 of work continues to change.

Our financial condition remains solid at June 30, 2023 and we remain well positioned to support our associates and our clients.

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YoY Growth, Organic Constant Currency 10 % 10 %

Revenues in fiscal 2022 increased due to new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, an increase in our pays per control, and continued strong client retention.

Revenues in fiscal 2023 increased due to new business started from New Business Bookings, an increase in zero-margin benefits pass-throughs, an increase in our pays per control, continued strong client retention, an increase in interest on funds held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign currency.

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 in fiscal 2023 include interest on funds held for clients of $813.4 million, as compared to $451.8 million in fiscal 2022.

The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of 18.7% to $32.5 billion in fiscal 2022 as compared to fiscal 2021, partially offset by the decrease in our average interest rate earned to 1.4% in fiscal 2022, as compared to 1.5% in fiscal 2021.

The increase in interest earned on funds held for clients resulted from an increase in our average interest rate earned to 2.4% in fiscal 2023, as compared to 1.4% in fiscal 2022, coupled with an increase in our average client funds balances of 5.1% to $34.1 billion in fiscal 2023 as compared to fiscal 2022.

Total Expenses

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For the year ended June 30:

Operating expenses increased due to the increase in our PEO Services zero-margin benefits pass-through costs to $3,514.4 million from $3,092.0 million for the year ended June 30, 2022 and 2021, respectively.

Additionally, operating expenses increased due to increased costs to service our client base in support of our growing revenue, partially offset by a net reduction of $28.8 million in our estimated losses related to ADP Traditional Incorporated Cell, formerly known as ADP Indemnity, Inc.

("ADP Indemnity") and the impact of foreign currency.

Operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $3,800.9 million from $3,514.4 million for the years ended June 30, 2023 and 2022, respectively.

Additionally, operating expenses increased due to increased costs to service our client base in support of our growing revenue, partially offset by the impact of foreign currency and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity.

Systems development and programming costs increased for fiscal 2023 due to increased investments and costs to develop, support, and maintain our new and existing products.

Selling, general and administrative expenses increased due to increased selling expenses as a result of investments in our sales organization, increased marketing expenses and increased travel expenses, partially offset by 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").

Interest expense increased primarily due to the issuance of 7-year fixed-rate notes totaling $1.0 billion issued in the fourth quarter of fiscal 2021, as compared to the year ended June 30, 2021.

Additionally, there was an increase in average interest rates for commercial paper borrowings to 0.4% for the year ended June 30, 2022, as compared to 0.1% for the year ended June 30, 2021.

This was coupled with an increase in average daily borrowings under our commercial paper program to $2.0 billion for the year ended June 30, 2022, as compared to $1.6 billion for the year ended June 30, 2021.

Depreciation and amortization expenses increased due to the amortization of internally developed software products and new investments in purchased software.

Selling, general and administrative expenses increased 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 2022, partially offset by the impact of foreign currency.

Interest expense increased due to the increase i n average interest rates on commercial paper issuances and reverse repurchases to 3.7% and 4.3% for the year ended June 30, 2023, as compared to 0.4% and 0.7% for the year ended June 30, 2022, respectively, also coupled with a higher volume of average commercial paper and reverse repurchase borrowings, as compared to the year ended June 30, 2022 .

Other (Income)/Expense, net

(In millions)

Years ended June 30, 2023 2022 $ Change

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Other (income)/expense, net $ (183.5) $ (82.8) $ 100.7

Other (income)/expense, net, decreased $13.5 million in fiscal 2022 , as compared to fiscal 2021 primarily as a result of losses on available-for-sale securities, net, in the current year, compared to gains in the prior year, and the items described below, partially offset by the change in non-service components of pension income, net.

Se e Note 10 of our Consolidated Financial Statements for further details on non-service components of pension income, net.

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 $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.

Earnings Before Income Taxes

Interest income on corporate funds increased in fiscal 2023, as compared to fiscal 2022, due to higher average interest rates of 2.4% for the year ended June 30, 2023, as compared to 1.0% for the year ended June 30, 2022, coupled with higher average investment balances for the year ended June 30, 2023 as compared to the year ended June 30, 2022.

See Note 10 of our Consolidated Financial Statements for further details on non-service components of pension income, net.

In fiscal 2022, the Company recorded impairment charges of $23.0 million, which is comprised 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.

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

For the year ended June 30, respectively:

2023 2022 YoY Growth

á 70 bps YoY Growth

EBIT $ 4,437.6 $ 3,804.1 17 %

EBIT Margin 24.6 % 23.1 % 160 bps

Adjusted EBIT $ 4,467.9 $ 3,871.8 15 %

Adjusted EBIT Margin 24.8 % 23.5 % 130 bps

Earnings before income taxes increased due to the increases in revenues partially offset by the increases in expenses discussed above.

Overall margin increased due to increases in revenues discussed above, operational efficiencies, the decrease of $26.0 million in our allowance for doubtful accounts, and a net reduction of $28.8 million in our estimated losses related to ADP Indemnity, partially offset by incremental pressure from growth in our zero-margin benefits pass-throughs.

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

For the year ended June 30, respectively:

á 14% YoY Growth

á 90 bps YoY Growth

Overall margin increased due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased selling expenses, increased interest expense, and increases in zero-margin pass through costs.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds

extended investment strategy, and net charges, including gain on sale of assets related to our broad-based transformation

initiatives and the impact of net severance charges, as applicable, in the respective periods.

initiatives and the impact of net severance charges relating to these initiatives, as applicable, in the respective periods.

Provision for Income Taxes

The effective tax rate in fiscal 2023 and 2022 was 23.1% and 22.5%, respectively.

The decrease in t he 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 increase in t he effective tax rate is primarily due to an intercompany transfer of certain assets that resulted in a lower effective tax rate in fiscal 2022 and higher reserves for uncertain tax positions in fiscal 2023.

Refer t o Note 11, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.

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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 Earnings per Share

Net Earnings and Diluted EPS, Unadjusted and Adjusted

For the year ended June 30, respectively:

2023 2022 YoY Growth

á 15% YoY Growth

Net earnings $ 3,412.0 $ 2,948.9 16 %

Diluted EPS $ 8.21 $ 7.00 17 %

Adjusted net earnings $ 3,419.5 $ 2,951.6 16 %

Adjusted diluted EPS $ 8.23 $ 7.01 17 %

Adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.

Diluted EPS increased as a result of the increase in net earnings and the impact of fewer shares outstanding resulting from the repurchase of approximately 4.9 million shares during fiscal 2023 and 9.2 million shares during fiscal 2022, partially offset by the issuances of shares under our employee benefit plans.

Adjusted Net Earnings and Adjusted Diluted Earnings per Share

For the year ended June 30, respectively:

á 15% YoY Growth

á 16% YoY Growth

For fiscal 2023, adjusted net earnings and adjusted diluted EPS reflect the changes in components described above.

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$ 4,437.6 $ 3,804.1 17 %

2023 2022 YoY Growth

Employer Services 33.0 % 31.1 % 190 bps

PEO Services 16.3 % 15.7 % 60 bps

n/m - not meaningful

Employer Services

Revenues increased due to new business started from New Business Bookings, an increase in our pays per control of 7%, continued strong retention, and an increase in interest earned on funds held for clients.

Revenues increased due to new business started from New Business Bookings, an increase in our pays per control of 5%, continued strong client retention, an increase in interest earned on funds held for clients, and an increase in pricing, partially offset by an unfavorable impact of one percentage point from foreign currency.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased in fiscal 2023 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, partially offset by the decrease of $26.0 million in our allowance for doubtful accounts.

For the year ended June 30, respectively:

110 bps YoY Growth

Employer Services' margin increased due to increases in revenues discussed above, operational efficiencies, and the decrease of $26.0 million in our allowance for doubtful accounts, partially offset by an increase in costs to service our client base in support of our growing revenue.

Employer Services' margin increased due to increases in revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by an increase in selling expenses.

Years Ended Change

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Earnings before Income Taxes

PEO Services’ earnings before income taxes increased 21% in fiscal 2022, due to increased revenues discussed above and a net reduction of $28.8 million in our estimated losses related to ADP Indemnity, partially offset by the increases in zero-margin benefits pass-throughs of $422.4 million for fiscal 2022.

For the year ended June 30, respectively:

á 80 bps YoY Growth

PEO Services' overall margin increased for fiscal 2022 due to an increase in revenues discussed above and a net reduction of $28.8 million in our estimated losses related to ADP Indemnity, partially offset by by incremental pressure from growth in our zero-margin benefits pass-throughs.

PEO Services’ earnings before income taxes increased 12% in fiscal 2023 due to increases in revenues discussed above and a net reduction of $12.3 million in our estimated losses related to ADP Indemnity, partially offset by the increases in zero-margin benefits pass-throughs of $286.5 million for fiscal 2023.

PEO Services' overall margin increased for fiscal 2023 due to increases in revenues discussed above, lower state unemployment and workers compensation insurance costs, and changes in our estimated losses related to ADP Indemnity, partially offset by 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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Transformation initiatives (b) 8.7 3.5

Excess capacity severance charges — 2.9

Legal settlements — (30.7)

Legal settlements (c) 1.2 —

Adjusted EBIT $ 4,467.9 $ 3,871.8 15 %

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Provision for income taxes $ 1,025.6 $ 855.2 20 %

Transformation initiatives (c) 0.8 —

Excess capacity severance charges — 0.5

Transformation initiatives (d) 2.2 0.8

Legal settlements 0.2 —

Adjusted provision for income taxes $ 1,028.0 $ 856.0 20 %

Adjusted effective tax rate (d) 22.5 % 22.7 %

Adjusted effective tax rate (e) 23.1 % 22.5 %

Net earnings $ 3,412.0 $ 2,948.9 16 %

Transformation initiatives (b) 8.7 3.5

Income tax benefit for transformation initiatives (c) (0.8) —

Excess capacity severance charges — 2.9

Income tax benefit for excess capacity severance charges — (0.5)

Legal settlements — (30.7)

Income tax provision/ (benefit) for legal settlements — 7.5

Income tax (benefit)/provision for transformation initiatives (d) (2.2) (0.8)

Legal settlements (c) 1.2 —

Income tax (benefit)/provision for legal settlements (d) (0.2) —

Adjusted net earnings $ 3,419.5 $ 2,951.6 16 %

Diluted EPS $ 8.21 $ 7.00 17 %

Transformation initiatives (b) (c) 0.01 —

Excess capacity severance charges — 0.01

Legal settlements — (0.05)

Transformation initiatives (b) (d) 0.02 0.01

Legal settlements (c) (d) — —

Adjusted diluted EPS $ 8.23 $ 7.01 17 %

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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 fiscal 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.

(c) The income tax provision/(benefit) was calculated based on the marginal rate in effect for the year ended June 30, 2022.

(d) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.

(b) In fiscal 2023, the charges include consulting costs relating to our company-wide transformation initiatives, partially offset by net reversals relating to severance.

(d) The income tax (benefit)/provision was calculated based on the marginal rate in effect for the year ended June 30, 2023.

(e) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.

The following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency.

The impact of acquisitions

and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction.

The impact of foreign currency is determined by calculating the current year results using foreign exchange rates consistent with the prior year.

The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction.

The impact of foreign currency is determined by calculating the current year results using foreign exchange rates consistent with the

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

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As of June 30, 2023, cash and cash equivalent s were $2.1 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 committed 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.

For corporate liquidity, we expect existing cash, cash equivalents, short-term and long-term marketable securities, cash flow from operations together with our $9.7 billion of committed 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 June 30, 2023 and we have sufficient liquidity.

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Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ (14,011.5) $ 9,639.8 $ (23,651.3)

Net cash flows provided by operating activities was flat compared to prior year and includes a net unfavorable change in the components of operating assets and liabilities, due to 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 year ended June 30, 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 $3,455.6 million, and higher payments related to acquisitions of intangibles and a business, offset by proceeds from the sale of property, plant, and equipment.

Net cash flows provided by financing activities changed due to a net increase in the cash flow from client funds obligations of $8,721.7 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, an increase in reverse repurchase agreements borrowing, and the settlement of cash flow hedges in the year ended June 30, 2021.

These were partially offset by the issuance of debt in the year ended June 30, 2021 and repurchases of common stock and dividends paid in fiscal 2022.

We purchased approximately 9.2 million shares of our common stock at an average price per share o f $214.40 du ring fis cal 2022, as compared to purchases of 8.2 million shares at an average price per share of $170.04 during fiscal 2021.

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 year ended June 30, 2022 .

Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $4,570.2 million, offset by higher payments for capital expenditures in fiscal 2023, and the sale of property, plant, and equipment in fiscal 2022.

Net cash flows used in financing activities changed due to a net decrease in the cash flow from client funds obligations of $29,759.5 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 a net decrease in reverse repurchase agreements borrowing, offset by a decrease in repurchases of common stock in fiscal 2023.

We purchased approximately 4.9 million shares of our common stock at an average price per share of $227.30 during fiscal 2023, as compared to purchases of 9.2 million shares at an average price per share of $214.40 during fiscal 2022.

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

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Weighted average interest rates 3.7 % 0.4 %

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

Weighted average maturity (approximately in days) 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 vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility.

We had a $3.75 billion, 364-day credit agree ment that was amended in June 2022 and matured 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.

In addition, we have a five-year $2.75 billion credit facility and a five-year $3.2 billion credit facility maturing in June 2024 and June 2026, respectively, each with an accordion feature under which the aggregate com mitment can be increased by $500 million, subject to the availability of additional commitments.

We have a $4.25 billion, 364-day credit agreement that matures in June 2024 with a one year term-out option.

In addition, we have a five-year $3.2 billion credit facility and a five-year $2.25 billion credit facility maturing in June 2026 and June 2028, respectively, each with an accordion feature under which the aggregate com mitment can be increased by $ 500 million , subject to the availability

of additional commitments.

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

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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.

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 is performing as expected through June 30, 2023.

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We had $36,333.6 million of cas h and cash e quivalents and marketable securities that were impounded from our clients to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2023.

Separately, ADP Indemnity paid a p remium of $284 million in Ju ly 2022 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2023 policy year.

Separately, ADP Indemnity paid a p remium of $269 million in July 2023 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year.

At June 30, 2023, ADP Indemnity had total assets of $660.8 million to satisfy the actuarially estimated unpaid losses of $552.3 million for the policy years since July 1, 2003.

ADP Indemnity paid claims of $1.8 million and $3.3 million, net of insurance recoveries, in fiscal 2022 and 2021,

respectively.

ADP Indemnity paid claims of $0.8 million and $1.8 million, net of insurance recoveries, in fiscal 2023 and 2022, respectively.

Refer to the “Analysis of Reportable Segments - PEO Services” above for additional information regarding ADP Indemnity.

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Quantitative and Qualitative Disclosures about Market Risk

Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, short-term and long-term marketable securities) and client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities or client employees).

Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities.

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Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income.

Client funds assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents.

assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents.

We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations.

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In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities in order to reduce the size of the funds held for clients to correspond to client funds obligations.

We minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by impounding, in virtually all instances, the client’s funds in advance of the timing of payment of such client’s obligation.

As a result of this practice, we have consistently maintained the required level of client funds assets to satisfy all of our obligations.

We attempt to minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by generally impounding the client’s funds by the time we pay such client’s obligation.

When we don’t impound client funds in advance of paying such client obligations, we are at risk of not recovering such funds or a material delay in such recovery.

Through our clients funds investment strategy and client impounding processes, we have consistently maintained the required level of liquidity to satisfy all of our obligations.

There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets.

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Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments.

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

The annualized interest rate earned on our entire portfolio decreased from 1.5% for fiscal 2021 to 1.3% for fiscal 2022.

A hy pothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rate s of 25 basis points appl ied to the estimated average investment balances and any related short-term borrowings would result in approx imately an $18 million i mpact to earnings before income taxes over the ensuing twelve-month period ending June 30, 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 an $8 million im pact to earnings before income taxes over the ensuing twelve-month period ending June 30, 2023.

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

The annualized interest rate earned on our entire portfolio increased from 1.3% for fiscal 2022 to 2.4% for fiscal 2023.

A hy pothetical chan ge 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 an $14 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30, 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 an $5 million impact to earnings before income taxes over the ensuing twelve-month period ending June 30, 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.

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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.

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

As of June 30, 2023 and 2022, the Company's liabilities for unrecognized tax benefits, which include interest and penalti es, were $116.9 million and $98.1 million, respectively.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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 7. Management’s Discussion and Analysis