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Item 7. Management’s Discussion and Analysis

2024-08-07 compared with 2023-08-03 · 85 added, 78 removed, 333 unchanged (33% of the section changed)

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FORWARD-LOOKING STATEMENTS

This document and other written or oral statements made from time to time by ADP may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Statements that are not historical in nature and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could” “is designed to” and other words of similar meaning, are forward-looking statements.

This document and other written or oral statements made from time to time by Automatic Data Processing, Inc., its subsidiaries and variable interest entity (“ADP” or the “Company”) may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Statements that are not historical in nature and which may be identified by the use of words like “outlook,” “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could,” “is designed to” and other words of similar meaning, are forward-looking statements.

These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed.

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EXECUTIVE OVERVIEW

Highlights from the year ended June 30, 2023 include:

9% 160 basis points

Revenue Growth Earnings Before Income Taxes Margin Expansion Diluted EPS Growth

10% 130 basis points

Organic Constant Currency

Revenue Growth Adjusted EBIT Margin Expansion Adjusted Diluted EPS Growth

10% Employer Services

New Business Bookings Growth 6% PEO Services

Average Worksite Employee Growth

Cash Returned via Shareholder Friendly Actions

$1.9B Dividends | $1.1B Share Repurchases

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

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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.

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

Leading with Best-in-Class HCM Technology, Providing Unmatched Expertise and Outsourcing Solutions, 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.

During the fiscal year we made meaningful progress on our strategic priorities.

We took action to lead with best-in-class HCM technology by launching ADP Assist, our cross-platform solution powered by generative AI ("GenAI") that empowers employees and HR professionals through smart, user-centric solutions.

To lean into our unmatched expertise, we provided our service and implementation associates with new GenAI capabilities to help them deliver even better client experiences.

Finally, we leveraged our global scale by extending our global footprint and deepening our partnerships with other leading technology providers to simplify HCM processes for our clients.

Highlights from the year ended June 30, 2024 include:

• Revenue growth of 7% to $19,202.6 million;

6% organic constant currency

• Earnings before income taxes margin expansion of 70 bps, and adjusted EBIT margin expansion of 70 bps

• Diluted and adjusted diluted earnings per share ("EPS") growth of 11% and 12%, to $9.10 and $9.18, respectively

• Cash returned via shareholder friendly actions of $3.4B, including $2.2B of dividends and $1.2B of share repurchases

For fiscal 2024, we delivered solid revenue growth of 7%, 6% on 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 2% for the year ended June 30, 2024 as compared to the year ended June 30, 2023.

PEO average worksite employees increased 2% for the year ended June 30, 2024, as compared to the year ended June 30, 2023.

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.

Additionally, our strong ES new business bookings performance resulted in growth of 7% in fiscal 2024, and ES client revenue retention was 92% driven by continued improvement in our client satisfaction scores.

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 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 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 long 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.

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YoY Growth, Organic Constant Currency 6 % 10 %

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.

Revenues in fiscal 2024 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.

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.

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Operating expenses $ 9,050.1 $ 8,657.4 5 %

Systems development and programming costs 844.8 798.6 6 %

Research and development 955.7 844.8 13 %

Depreciation and amortization 470.9 451.2 4 %

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Operating expenses increased due to an increase in our PEO Services zero-margin benefits pass-through costs to $3,975.9 million from $3,800.9 million for the years ended June 30, 2024 and 2023, 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.

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 .

Additionally, operating expenses increased by $68.5 million due to increased service and implementation costs in support of our growing revenue, and increased $70.0 million due to less favorable actuarial loss development in workers’ compensation reserves in ADP Indemnity as compared to prior year.

Research and development expenses increased for fiscal 2024 due to increased investments and costs to develop, support, and maintain our new and existing products, and increased investments in GenAI, including the integration of GenAI in our existing products.

Depreciation and amortization expenses increased for fiscal 2024 due to the amortization of new investments in purchased software and internally developed software primarily for our next-gen products.

Selling, general and administrative expenses increased for fiscal 2024 due to increased selling expenses as a result of investments in our sales organization to support increased bookings, and increased severance costs due to company-wide efforts related to workforce optimization.

Interest expense increased due to the increase i n average interest rates on commercial paper issuances and reverse repurchases to 5.3% and 5.5%, respectively, for the year ended June 30, 2024, as compared to 3.7% and 4.3%, respectively, for the year ended June 30, 2023, also coupled with a higher volume of average commercial paper and reverse repurchase borrowings, as compared to the year ended June 30, 2023 .

Other (Income)/Expense, net

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Interest income on corporate funds $ (241.3) $ (149.5) $ 91.8

Realized losses/(gains) on available-for-sale securities, net 14.7 4.4 (10.3)

Realized losses on available-for-sale securities, net 5.9 14.7 8.8

Impairment of assets — 2.1 2.1

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Other (income)/expense, net $ (286.7) $ (183.5) $ 103.2

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.

Interest income on corporate funds increased in fiscal 2024, as compared to fiscal 2023, due to higher average interest rates of 3.3% for the year ended June 30, 2024, as compared to 2.4% for the year ended June 30, 2023, coupled with higher average investment balances of $7.4 billion in fiscal 2024 as compared to $6.3 billion in fiscal 2023.

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.

In fiscal 2024, the Company recognized a gain of $17.1 million, in relation to the sale of buildings and land.

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

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Adjusted EBIT Margin 25.5 % 24.8 % 70 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, 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.

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

Overall margin increased due to the increases in total revenues discussed above, increased interest income on corporate funds, operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increases in selling and marketing expenses, increased interest expense, less favorable actuarial loss development in workers’ compensation reserves related to ADP Indemnity, and investments and costs to develop, support, and maintain our new and existing products.

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 relating to these initiatives, as applicable, in the respective periods.

extended investment strategy, and net charges, including certain legal matters, charges related to our broad-based transformation initiative and workforce optimization.

Provision for Income Taxes

The effective tax rate in fiscal 2024 and 2023 was 23.0% and 23.1%, respectively.

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.

The decrease in the effective tax rate is primarily due to a valuation allowance release and an intercompany transfer of certain assets offset by a lower benefit for

adjustments to prior year tax liabilities in fiscal 2024.

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

Adjusted Provision for Income Taxe s

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Employer Services

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.

Revenues increased due to new business started from New Business Bookings, an increase in our pays per control of 2%, continued strong client retention, an increase in interest earned on funds held for clients, and an increase in pricing.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased in fiscal 2024 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.

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.

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

Employer Services' margin increased due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by investments and costs to develop, support, and maintain our new and existing products.

Years Ended Change

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Earnings before Income Taxes

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.

PEO Services’ earnings before income taxes decreased 6% in fiscal 2024 due to less favorable actuarial loss development in workers’ compensation reserves in ADP Indemnity of $70.0 million as compared to prior year, increases in selling expenses, and increases in zero-margin benefits pass-through costs for the year ended June 30, 2024, partially offset by increased revenues discussed above.

PEO Services' overall margin decreased for fiscal 2024 due to less favorable actuarial loss development in workers’ compensation reserves in ADP Indemnity, increases in selling expenses, and increases in zero-margin benefits pass-through costs, partially offset by increased revenues discussed above.

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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During fiscal 2024, ADP Indemnity paid a premium of $269 million to enter into a reinsurance arrangement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2024 policy year up to $1 million per occurrence.

ADP Indemnity recorded a pre-tax benefit of approximately $73 million in fiscal 2023 and a pre-tax benefit of approximately $61 million in fiscal 2022, which were primarily a result of changes in our estimated actuarial losses.

ADP Indemnity recorded a pre-tax benefit of approximately $3 million in fiscal 2024 and a pre-tax benefit of approximately $73 million in fiscal 2023, which were primarily the results of less favorable actuarial loss development in workers’ compensation reserves.

ADP Indemnity paid a premium of $276 million in July 2024, to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for fiscal 2025 policy year on terms substantially similar to the fiscal 2024 reinsurance policy.

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Legal settlements (c) (4.0) 1.2

Workforce optimization (d) 42.0 —

Adjusted EBIT $ 4,890.1 $ 4,467.9 9 %

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Provision for income taxes $ 1,120.3 $ 1,025.6 9 %

Transformation initiatives (d) 2.2 0.8

Legal settlements 0.2 —

Transformation initiatives (e) 1.3 2.2

Legal settlements (e) (0.9) 0.2

Workforce optimization (e) 10.5 —

Adjusted provision for income taxes $ 1,131.2 $ 1,028.0 10 %

Adjusted effective tax rate (e) 23.1 % 22.5 %

Adjusted effective tax rate (f) 23.0 % 23.1 %

Net earnings $ 3,752.0 $ 3,412.0 10 %

Transformation initiatives (b) 5.4 8.7

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

Income tax (benefit)/provision for transformation initiatives (e) (1.3) (2.2)

Legal settlements (c) (4.0) 1.2

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

Income tax (benefit)/provision for legal settlements (e) 0.9 (0.2)

Workforce optimization (d) 42.0 —

Income tax (benefit)/provision for workforce optimization (e) (10.5) —

Adjusted net earnings $ 3,784.5 $ 3,419.5 11 %

Diluted EPS $ 9.10 $ 8.21 11 %

Transformation initiatives (b) (d) 0.02 0.01

Legal settlements (c) (d) — —

Transformation initiatives (b) (e) 0.01 0.02

Legal settlements (c) (e) (0.01) —

Workforce optimization (d) (e) 0.08 —

Adjusted diluted EPS $ 9.18 $ 8.23 12 %

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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 2023, the charges 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 initiatives.

(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.

(b) In fiscal 2024, the charges include consulting costs relating to our company-wide transformation initiatives.

(d) The charges relating to workforce optimization represent severance charges.

Severance charges have been taken in the past and not included as an adjustment to get to adjusted results.

Unlike severance charges in prior periods, these specific charges relate to a broad-based, company-wide workforce optimization effort.

(e) The income tax (benefit)/provision was calculated based on the marginal rate in effect for the year ended June 30, 2024.

(f) 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

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

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

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Employer Services revenue growth, organic constant currency 7 %

Numbers may not foot due to rounding.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2024, cash and cash equivalent s were $2.9 billion, which were primarily invested in time deposits and money market funds.

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.

For corporate liquidity, we expect existing cash, cash equivalents, marketable securities, cash flow from operations together with our $10.3 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, 2024 and we have sufficient liquidity.

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Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 1,314.5 $ (14,011.5) $ 15,326.0

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.

Net cash flows provided by operating activities decreased due to a net unfavorable change in the components of operating assets and liabilities primarily due to timing on collections of accounts receivable, offset by growth in our underlying business (net income adjusted for non-cash adjustments), as compared to the year ended June 30, 2023.

Net cash flows used in investing activities changed due to the timing of proceeds and purchases of corporate and client funds marketable securities of $1,117.5 million.

Net cash flows used in financing activities changed due to a net increase in the cash flow from client funds obligations of $13,715.7 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, a net increase in cash received from the Internal Revenue Service as of June 30, 2024 to be refunded to our clients, a net increase in proceeds related to reverse repurchase agreements, offset by an increase in dividends paid, and an increase in repurchases of common stock in fiscal 2024.

We purchased approximately 5.1 million shares of our common stock at an average price per share of $244.04 during fiscal 2024, as compared to purchases of 4.9 million shares at an average price per share of $227.30 during fiscal 2023.

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However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all.

See Note 9 of our Consolidated Financial Statements for a description of our notes.

See Note 9 of our Consolidated Financial Statements for a description of our senior unsecured notes.

short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securiti es.

This commercial paper program provides for the issuance of up to $9.7 billion in aggregate maturity value .

In June 2024, the company increased its U.S.

short-term commercial paper program to provide for the issuance of up to $10.3 billion from $9.7 billion in aggregate maturity value.

Our c ommercial paper program is rated A-1+ by Standard and Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch.

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Weighted average interest rates 5.3 % 3.7 %

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

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

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 obligations.

We have $7.3 billion available to us on a committed basis under these reverse repurchase agreements.

At June 30, 2024 and 2023, there were $385.4 million and $105.4 million, respectively, of outstanding obligations related to the reverse repurchase agreements.

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We have a $4.55 billion, 364-day credit agreement that matures in June 2025 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.

In addition, we have a five-year $2.25 billion credit facility and a five-year $3.5 billion credit facility maturing in June 2028 and June 2029, 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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Contractual Obligations

Our contractual obligations at June 30, 2023 relate primarily to operating leases (Note 6) and other arrangements recorded in our balance sheet or disclosed in the notes to our financial statements, including benefit plan obligations (Note 10), liabilities for uncertain tax positions (Note 11), purchase obligations (Note 12), debt obligations (Note 9) and $263.5 million of interest payments of our debt, of which $64.3 million is expected to be paid within one year.

Our contractual obligations at June 30, 2024 relate primarily to operating leases (Note 6) and other arrangements recorded in our balance sheet or disclosed in the notes to our financial statements, including benefit plan obligations (Note 10), liabilities for uncertain tax positions (Note 11), purchase obligations (Note 12), debt obligations (Note 9) and $200.1 million of interest payments on our debt, of which $64.3 million is expected to be paid within one year.

In addition to the obligations described above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services.

As of June 30, 2024, the obligations relating to these matters, which are expected to be paid in fiscal 2025, total $39,503.9 million, and were recorded in client funds obligations on our Consolidated Balance Sheets.

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.

We had $37,996.1 million of cas h and cash e quivalents and marketable securities to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2024.

In addition, as of June 30, 2024, we held approximately $622.0 million of funds received from the Internal Revenue Service that will be refunded to our clients in fiscal 2025.

This obligation is recorded in accrued expenses and other current liabilities on our Consolidated Balance Sheets.

Separately, ADP Indemnity paid a p remium of $276 million in July 2024 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2025 policy year.

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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, client employees or other payees).

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

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

These assets are available for our regular quarterly dividends, share repurchases, capital expenditures and/or acquisitions, as well as other corporate operating purposes.

All of our short-term and long-term fixed-income securities are classified as available-for-sale securities.

All of our fixed-income securities are classified as available-for-sale securities.

Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives.

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

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.

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.

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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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.

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

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However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations.

We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under o ur $9.7 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s, and F1+ by Fitch, the highest possible short-term credit ratings), our ability to engage in reverse repurchase agreement transactions and available borrowings under our $9.7 billion committe d credit facilities.

We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under o ur $10.3 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s, and F1+ by Fitch, the highest possible short-term credit ratings), our ability to engage in reverse repurchase agreement transaction s ($7.3 billion of which is available on a committed basis), and available borrowings under our $10.3 billion committe d credit facilities.

The reduced availability of financing during periods of economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to meet the liquidity needs of our business.

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Total 3.0 % 2.4 %

Net realized losses/(gains) on available-for-sale securities 14.7 4.4

Net realized losses on available-for-sale securities 5.9 14.7

As of June 30:

Net unrealized pre-tax (losses)/gains on available-for-sale securities $ (2,206.9) $ (1,721.4)

Net unrealized pre-tax losses on available-for-sale securities $ (1,515.8) $ (2,206.9)

Total available-for-sale securities at fair value $ 31,207.5 $ 29,764.9

25 unchanged sentences

Judgments and Uncertainties

The Company has estimated the amortization periods for deferred costs by using its historical retention rates by business unit to estimate the pattern during which the service transfers.

The Company has estimated the amortization periods for deferred costs by using its historical client retention rates by business unit to estimate the pattern during which the service transfers.

The expected client relationship period ranges from three to eight years.

26 unchanged sentences

While the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due.

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.

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, 2024 and 2023, the Company's liabilities for unrecognized tax benefits, which include interest and penalti es, were $126.9 million and $116.9 million, respectively.

2 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 7. Management’s Discussion and Analysis