Notes to the Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts)
(Unaudited)
Note 1. Basis of Presentation
The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc. and its subsidiaries (“ADP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Consolidated Financial Statements and footnotes thereto are unaudited. In the opinion of the Company’s management, the Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of the Company’s interim financial results.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, expenses, and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. The Consolidated Financial Statements and all relevant footnotes have been adjusted for all businesses that qualify as a discontinued operation (see Note 3). The Interim Financial Data by Segment has also been adjusted to reflect the historical results of the AdvancedMD (“AMD”) business within the Other segment (see
Note 14
).
Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2015
(“fiscal
2015
”).
Note 2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In November 2015, the Company prospectively adopted Accounting Standards Update ("ASU") 2015-17, "Balance Sheet Classification of Deferred Taxes." The update simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets, including valuation allowances, be classified as noncurrent in the consolidated balance sheets. ASU 2015-17 did not have a material impact on the Company’s consolidated statement of financial condition and had no impact on the Company's consolidated results of operations or cash flows. Prior periods were not retrospectively adjusted.
In September 2015, the Company prospectively adopted ASU 2015-16, "Simplifying the Accounting for Measurement Period Adjustments." The update eliminates the need to retrospectively adjust prior period information in the financial statements for acquisition adjustments to goodwill during the measurement period. The adoption had no impact on the Company's consolidated results of operations, financial condition, or cash flows as presented, however, the future impact of ASU 2015-16 will be dependent on future acquisitions, if any.
In July 2015, the Company retrospectively adopted ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs." Debt issuance costs have been presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability. ASU 2015-03 did not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
In July 2015, the Company prospectively adopted ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as a discontinued operation. As a result of ASU 2014-08, the Company did not classify AMD as a discontinued operation. The businesses classified as a discontinued operation prior to June 30, 2015 continue to be classified as a discontinued operation (see Note 3).
Recently Issued Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-09 "Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718)." Under this standard, among other changes, income tax benefits and deficiencies with respect to stock-based compensation will be recognized as income tax expense or benefit in the income statement, excess tax benefits will be classified as an operating activity on the statement of cash flows and stock-based compensation awards can qualify as equity awards even if the entity permits tax withholdings greater than the statutory minimum. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including
interim periods within that reporting period. Early adoption is permitted. The adoption of ASU 2016-09 is expected to impact the Company's provision for income taxes on its Statements of Consolidated Earnings and its operating and financing cash flows on its Statements of Consolidated Cash Flows. The magnitude of such impacts are dependent upon the Company's future grants of stock-based compensation, the Company's stock price in relation to the fair value of awards on grant date, and the exercise behavior of the Company's associates.
In February 2016, FASB issued ASU 2016-02 "Leases (Topic 842)." This update amends the existing accounting standards for lease accounting, and requires lessees to recognize most lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company has not yet determined the impact of ASU 2016-02 on its consolidated results of operations, financial condition, or cash flows.
In January 2016, FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." This update impacts the accounting for financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is to be applied prospectively and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company has determined that ASU 2016-01 will have no impact on its consolidated results of operations, financial condition, or cash flows.
In April 2015, the FASB issued ASU 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." The update provides guidance on whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company intends to prospectively adopt ASU 2015-05 and does not expect the new standard to have a material impact on its consolidated results of operations, financial condition, or cash flows.
In April 2015, the FASB issued ASU 2015-04, "Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets." The update allows an entity to remeasure their pension and other post-retirement benefit plan assets and liabilities at the month-end closest to a significant event such as a plan amendment, curtailment, or settlement. ASU 2015-04 is to be applied prospectively and is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2015. Early adoption is permitted. The impact of ASU 2015-04 is dependent upon the nature of future significant events impacting the Company's pension plans, if any.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance, and has since issued additional amendments to ASU 2014-09. These new standards require an entity to recognize revenue depicting the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standards will also result in enhanced revenue related disclosures. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Statements of Consolidated Financial Position. The new standards are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company has not yet determined the impact of these new revenue recognition standards on its consolidated results of operations, financial condition, or cash flows.
Note 3. Divestitures
A. Disposition
On
September 1, 2015
, the Company completed the sale of its AMD business for a pre-tax gain of
$29.1 million
, less costs to sell, and recorded such gain within Other income, net on the Statements of Consolidated Earnings. The Company determined that the disposition did not meet the criteria for reporting discontinued operations under ASU 2014-08, which was adopted prospectively on July 1, 2015, as the disposition of this business does not represent a strategic shift that has a major effect on the Company's operations or financial results. The historical results of AMD are being reported in the Other segment (see
Note 14
).
B. Discontinued Operations
On
June 26, 2015
, the Company completed the sale of its Procure-to-Pay business ("P2P"), which was previously reported in the Employer Services segment, for a pre-tax gain of
$100.9 million
, less costs to sell, and recorded such gain within earnings from discontinued operations on the Statements of Consolidated Earnings.
On
September 30, 2014
, the Company completed the tax free spin-off of its former Dealer Services business, which was a separate reportable segment, into an independent publicly traded company called CDK Global, Inc. ("CDK"). As a result of the spin-off, ADP stockholders of record on
September 24, 2014
(the "record date") received
one
share of CDK common stock on September 30, 2014, par value
$0.01
per share, for every
three
shares of ADP common stock held by them on the record date and cash for any fractional shares of CDK common stock. ADP distributed approximately
160.6 million
shares of CDK common stock in the distribution. During the first quarter of the fiscal year ended
June 30, 2016
("fiscal
2016
"), the Company became aware that
1.0 million
of the
160.6 million
shares of CDK stock distributed at the distribution date were inadvertently issued and distributed with respect to certain unvested Company equity awards. The
1.0 million
shares were canceled during the first quarter of fiscal 2016. Such shares distributed as part of the spin-off did not have any impact to previously reported results of operations, financial condition, or cash flows. The spin-off was made without the payment of any consideration or the exchange of any shares by ADP stockholders. The spin-off, transitional, and on-going relationships between ADP and CDK are governed by the Separation and Distribution Agreement entered into between ADP and CDK and certain other ancillary agreements.
Incremental costs associated with the spin-off of CDK of
$2.4 million
for the three months ended
March 31, 2015
and
$47.7 million
for the
nine months ended
March 31, 2015
are included in discontinued operations on the Statements of Consolidated Earnings.
In conjunction with the spin-off of CDK and the sale of P2P, the Company has classified the operating results of these businesses as discontinued operations for all periods presented. Results for discontinued operations were as follows:
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|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2015
|
|
2016
|
|
2015
|
Revenues
|
$
|
7.4
|
|
|
$
|
—
|
|
|
$
|
531.7
|
|
|
|
|
|
|
|
Earnings from discontinued operations before income taxes
|
0.3
|
|
|
—
|
|
|
67.8
|
|
Provision for income taxes
|
1.0
|
|
|
—
|
|
|
71.0
|
|
Net loss from discontinued operations before gain on disposal of discontinued operations
|
(0.7
|
)
|
|
—
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
Adjustment of gain on disposal of P2P
|
—
|
|
|
(1.4
|
)
|
|
—
|
|
Benefit for income taxes
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
Net adjustment of gain on disposal of P2P
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
$
|
(0.7
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(3.2
|
)
|
Note 4. Earnings per Share (“EPS”)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
Effect of Employee Stock Option Shares
|
|
Effect of
Employee
Restricted
Stock
Shares
|
|
Diluted
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
$
|
532.5
|
|
|
|
|
|
|
|
|
$
|
532.5
|
|
Weighted average shares (in millions)
|
|
454.4
|
|
|
1.0
|
|
|
1.5
|
|
|
456.9
|
|
EPS from continuing operations
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
$
|
1.17
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
$
|
490.3
|
|
|
|
|
|
|
|
|
$
|
490.3
|
|
Weighted average shares (in millions)
|
|
470.3
|
|
|
1.9
|
|
|
1.8
|
|
|
474.0
|
|
EPS from continuing operations
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
$
|
1,211.4
|
|
|
|
|
|
|
|
|
$
|
1,211.4
|
|
Weighted average shares (in millions)
|
|
458.2
|
|
|
0.9
|
|
|
1.5
|
|
|
460.6
|
|
EPS from continuing operations
|
|
$
|
2.64
|
|
|
|
|
|
|
|
|
$
|
2.63
|
|
Nine Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
|
$
|
1,119.5
|
|
|
|
|
|
|
|
|
$
|
1,119.5
|
|
Weighted average shares (in millions)
|
|
475.1
|
|
|
1.7
|
|
|
1.5
|
|
|
478.3
|
|
EPS from continuing operations
|
|
$
|
2.36
|
|
|
|
|
|
|
|
|
$
|
2.34
|
|
Options to purchase
0.9 million
and
0.7 million
shares of common stock for the three months ended
March 31, 2016
and 2015, respectively, and
1.7 million
and
0.2 million
shares of common stock for the
nine months ended
March 31, 2016
and 2015, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
Note 5
. Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest income on corporate funds
|
$
|
(9.7
|
)
|
|
$
|
(7.2
|
)
|
|
$
|
(45.6
|
)
|
|
$
|
(43.9
|
)
|
Realized gains on available-for-sale securities
|
(2.0
|
)
|
|
(1.0
|
)
|
|
(3.5
|
)
|
|
(3.6
|
)
|
Realized losses on available-for-sale securities
|
2.1
|
|
|
0.3
|
|
|
7.4
|
|
|
1.3
|
|
Gain on the sale of notes receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
Gain on sale of AMD (see Note 3)
|
—
|
|
|
—
|
|
|
(29.1
|
)
|
|
—
|
|
Gain on sale of building
|
—
|
|
|
—
|
|
|
(13.9
|
)
|
|
—
|
|
Other income, net
|
$
|
(9.6
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(84.7
|
)
|
|
$
|
(47.6
|
)
|
At
December 31, 2015
, the Company concluded that it had the intent to sell certain available-for-sale securities with unrealized losses of
$3.6 million
. As such, the Company recorded an impairment charge of
$3.6 million
, which is included in the realized losses on available-for-sale securities in the table above, for the
nine months ended
March 31, 2016
. As of
March 31, 2016
, all such securities had been sold.
During the
nine months ended
March 31, 2016
, the Company sold a building and, as a result, recorded a gain of
$13.9 million
in Other income, net, on the Statements of Consolidated Earnings.
During the
nine months ended
March 31, 2015
, the Company sold notes receivable related to Dealer Services financing arrangements for
$226.7 million
. Although the sale of the notes receivable transfers the majority of the risk to the purchaser, the Company does retain a minimal level of credit risk on the sold receivables. The cash received in exchange for the notes receivable sold was recorded within the operating activities on the Statements of Consolidated Cash Flows and the gain on sale of
$1.4 million
was recorded within Other income, net on the Statements of Consolidated Earnings.
Note 6. Corporate Investments and Funds Held for Clients
Corporate investments and funds held for clients at
March 31, 2016
and
June 30, 2015
were as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Market Value (A)
|
Type of issue:
|
|
|
|
|
|
|
|
Money market securities, cash and other cash equivalents
|
$
|
22,985.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,985.0
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Corporate bonds
|
9,388.5
|
|
|
193.0
|
|
|
(5.1
|
)
|
|
9,576.4
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
5,026.3
|
|
|
80.9
|
|
|
(0.4
|
)
|
|
5,106.8
|
|
Asset-backed securities
|
3,422.7
|
|
|
32.0
|
|
|
(1.8
|
)
|
|
3,452.9
|
|
Canadian government obligations and
Canadian government agency obligations
|
985.0
|
|
|
12.2
|
|
|
(0.1
|
)
|
|
997.1
|
|
Canadian provincial bonds
|
757.1
|
|
|
27.0
|
|
|
(0.2
|
)
|
|
783.9
|
|
Municipal bonds
|
586.9
|
|
|
20.2
|
|
|
(0.4
|
)
|
|
606.7
|
|
Other securities
|
501.8
|
|
|
14.1
|
|
|
(0.3
|
)
|
|
515.6
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
20,668.3
|
|
|
379.4
|
|
|
(8.3
|
)
|
|
21,039.4
|
|
|
|
|
|
|
|
|
|
Total corporate investments and funds held for clients
|
$
|
43,653.3
|
|
|
$
|
379.4
|
|
|
$
|
(8.3
|
)
|
|
$
|
44,024.4
|
|
(A) Included within available-for-sale securities are corporate investments with fair values of
$31.5 million
and funds held for clients with fair values of
$21,007.9 million
. All available-for-sale securities were included in Level 2 of the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Market Value (B)
|
Type of issue:
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities, cash and other cash equivalents
|
$
|
5,686.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,686.3
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
9,497.5
|
|
|
115.7
|
|
|
(29.6
|
)
|
|
9,583.6
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
5,764.3
|
|
|
64.6
|
|
|
(9.8
|
)
|
|
5,819.1
|
|
Asset-backed securities
|
2,442.4
|
|
|
11.1
|
|
|
(6.1
|
)
|
|
2,447.4
|
|
Canadian government obligations and
Canadian government agency obligations
|
923.2
|
|
|
15.4
|
|
|
(0.2
|
)
|
|
938.4
|
|
Canadian provincial bonds
|
723.9
|
|
|
27.9
|
|
|
(0.8
|
)
|
|
751.0
|
|
Municipal bonds
|
586.6
|
|
|
14.3
|
|
|
(1.4
|
)
|
|
599.5
|
|
Other securities
|
719.4
|
|
|
16.1
|
|
|
(0.7
|
)
|
|
734.8
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
20,657.3
|
|
|
265.1
|
|
|
(48.6
|
)
|
|
20,873.8
|
|
|
|
|
|
|
|
|
|
Total corporate investments and funds held for clients
|
$
|
26,343.6
|
|
|
$
|
265.1
|
|
|
$
|
(48.6
|
)
|
|
$
|
26,560.1
|
|
(B) Included within available-for-sale securities are corporate investments with fair values of
$55.5 million
and funds held for clients with fair values of
$20,818.3 million
. All available-for-sale securities were included in Level 2 of the fair value hierarchy.
For a description of the fair value hierarchy and the Company's fair value methodologies, including the use of an independent third-party pricing service, see Note 1 "Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for fiscal
2015
. The Company did not transfer any assets between Level 1 and Level 2 during the
nine months ended
March 31, 2016
or fiscal
2015
. In addition, the Company did not adjust the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 1 or Level 3 as of
March 31, 2016
.
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of
March 31, 2016
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Securities in Unrealized Loss Position Less Than 12 Months
|
|
Securities in Unrealized Loss Position Greater Than 12 Months
|
|
Total
|
|
Gross
Unrealized
Losses
|
|
Fair Market
Value
|
|
Gross
Unrealized
Losses
|
|
Fair Market
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Market Value
|
Corporate bonds
|
$
|
(4.4
|
)
|
|
$
|
499.2
|
|
|
$
|
(0.7
|
)
|
|
$
|
188.8
|
|
|
$
|
(5.1
|
)
|
|
$
|
688.0
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
(0.3
|
)
|
|
127.8
|
|
|
(0.1
|
)
|
|
224.9
|
|
|
(0.4
|
)
|
|
352.7
|
|
Asset-backed securities
|
(0.7
|
)
|
|
419.8
|
|
|
(1.1
|
)
|
|
350.8
|
|
|
(1.8
|
)
|
|
770.6
|
|
Canadian government obligations and
Canadian government agency obligations
|
(0.1
|
)
|
|
66.0
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
66.0
|
|
Canadian provincial bonds
|
(0.2
|
)
|
|
63.6
|
|
|
—
|
|
|
10.0
|
|
|
(0.2
|
)
|
|
73.6
|
|
Municipal bonds
|
(0.2
|
)
|
|
30.8
|
|
|
(0.2
|
)
|
|
6.3
|
|
|
(0.4
|
)
|
|
37.1
|
|
Other securities
|
(0.2
|
)
|
|
27.0
|
|
|
(0.1
|
)
|
|
4.5
|
|
|
(0.3
|
)
|
|
31.5
|
|
|
$
|
(6.1
|
)
|
|
$
|
1,234.2
|
|
|
$
|
(2.2
|
)
|
|
$
|
785.3
|
|
|
$
|
(8.3
|
)
|
|
$
|
2,019.5
|
|
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of
June 30, 2015
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2015
|
|
Securities in Unrealized Loss Position Less Than 12 Months
|
|
Securities in Unrealized Loss Position Greater Than 12 Months
|
|
Total
|
|
Gross
Unrealized
Losses
|
|
Fair Market
Value
|
|
Gross
Unrealized
Losses
|
|
Fair Market
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Market Value
|
Corporate bonds
|
$
|
(27.3
|
)
|
|
$
|
2,403.5
|
|
|
$
|
(2.3
|
)
|
|
$
|
228.1
|
|
|
$
|
(29.6
|
)
|
|
$
|
2,631.6
|
|
U.S. Treasury and direct obligations of U.S. government agencies
|
(7.2
|
)
|
|
865.1
|
|
|
(2.6
|
)
|
|
374.0
|
|
|
(9.8
|
)
|
|
1,239.1
|
|
Asset-backed securities
|
(3.2
|
)
|
|
606.8
|
|
|
(2.9
|
)
|
|
443.6
|
|
|
(6.1
|
)
|
|
1,050.4
|
|
Canadian government obligations and
Canadian government agency obligations
|
(0.2
|
)
|
|
85.8
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
85.8
|
|
Canadian provincial bonds
|
(0.8
|
)
|
|
101.5
|
|
|
—
|
|
|
10.0
|
|
|
(0.8
|
)
|
|
111.5
|
|
Municipal bonds
|
(1.2
|
)
|
|
143.6
|
|
|
(0.2
|
)
|
|
6.0
|
|
|
(1.4
|
)
|
|
149.6
|
|
Other securities
|
(0.4
|
)
|
|
36.6
|
|
|
(0.3
|
)
|
|
13.7
|
|
|
(0.7
|
)
|
|
50.3
|
|
|
$
|
(40.3
|
)
|
|
$
|
4,242.9
|
|
|
$
|
(8.3
|
)
|
|
$
|
1,075.4
|
|
|
$
|
(48.6
|
)
|
|
$
|
5,318.3
|
|
At
March 31, 2016
, Corporate bonds include investment-grade debt securities with a wide variety of issuers, industries, and sectors, that primarily carry credit ratings of A and above, and have maturities ranging from
April 2016
to
March 2024
.
At
March 31, 2016
, U.S. Treasury and direct obligations of U.S. government agencies primarily include debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks with fair values of
$3,491.5 million
and
$941.7 million
, respectively. U.S. Treasury and direct obligations of U.S. government agencies represent senior, unsecured, non-callable debt that primarily carries a credit rating of Aaa, as rated by Moody's, and AA+, as rated by Standard & Poor's, and have maturities ranging from
April 2016
through
November 2025
.
At
March 31, 2016
, asset-backed securities include AAA rated senior tranches of securities with predominantly prime collateral of fixed rate credit card, auto loan, and equipment lease receivables with fair values of
$2,106.1 million
,
$813.7 million
, and
$288.1 million
, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All collateral on such asset-backed securities has performed as expected through
March 31, 2016
.
At
March 31, 2016
, other securities and their fair value primarily represent: AAA and AA rated supranational bonds of
$200.3 million
, AAA and AA rated sovereign bonds of
$178.6 million
, and AA rated mortgage-backed securities of
$100.5 million
that are guaranteed primarily by Federal National Mortgage Association ("Fannie Mae"). The Company's mortgage-backed securities represent an undivided beneficial ownership interest in a group or pool of one or more residential mortgages. These securities are collateralized by the cash flows of
15
-year and
30
-year residential mortgages and are guaranteed by Fannie Mae as to the timely payment of principal and interest.
Classification of corporate investments on the Consolidated Balance Sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2016
|
|
2015
|
Corporate investments:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,941.4
|
|
|
$
|
1,639.3
|
|
Short-term marketable securities
|
|
23.7
|
|
|
26.6
|
|
Long-term marketable securities
|
|
7.8
|
|
|
28.9
|
|
Total corporate investments
|
|
$
|
2,972.9
|
|
|
$
|
1,694.8
|
|
Funds held for clients represent assets that, based upon the Company's intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as client funds obligations on our Consolidated Balance Sheets.
Funds held for clients have been invested in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2016
|
|
2015
|
Funds held for clients:
|
|
|
|
|
Restricted cash and cash equivalents held to satisfy client funds obligations
|
|
$
|
20,043.6
|
|
|
$
|
4,047.0
|
|
Restricted short-term marketable securities held to satisfy client funds obligations
|
|
3,294.1
|
|
|
4,497.7
|
|
Restricted long-term marketable securities held to satisfy client funds obligations
|
|
17,713.8
|
|
|
16,320.6
|
|
Total funds held for clients
|
|
$
|
41,051.5
|
|
|
$
|
24,865.3
|
|
Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll and tax payment obligations and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within
one year
of the balance sheet date. The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling
$40,681.3 million
and
$24,650.5 million
as of
March 31, 2016
and
June 30, 2015
, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purposes of satisfying the client funds obligations. The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash inflows and outflows related to client funds investments with original maturities of
ninety days or less
on a net basis within net increase in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash flows related to the cash received from and paid on behalf of clients on a net basis within net increase in client funds obligations in the financing activities section of the Statements of Consolidated Cash Flows.
Approximately
80%
of the available-for-sale securities held a AAA or AA rating at
March 31, 2016
, as rated by Moody's, Standard & Poor's and, for Canadian securities, DBRS. All available-for-sale securities were rated as investment grade at
March 31, 2016
.
Expected maturities of available-for-sale securities at
March 31, 2016
are as follows:
|
|
|
|
|
One year or less
|
$
|
3,317.8
|
|
One year to two years
|
3,023.8
|
|
Two years to three years
|
2,568.3
|
|
Three years to four years
|
4,448.2
|
|
After four years
|
7,681.3
|
|
|
|
|
Total available-for-sale securities
|
$
|
21,039.4
|
|
Note 7. Goodwill and Intangibles Assets, net
Changes in goodwill for the
nine months ended
March 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
Services
|
|
PEO
Services
|
|
Other
|
|
Total
|
Balance at June 30, 2015 (A)
|
$
|
1,788.7
|
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
1,793.5
|
|
Transfer of AMD goodwill (see Note 14)
|
(100.4
|
)
|
|
—
|
|
|
100.4
|
|
|
—
|
|
Currency translation adjustments
|
(3.8
|
)
|
|
—
|
|
|
—
|
|
|
(3.8
|
)
|
Disposition of AMD
|
—
|
|
|
—
|
|
|
(100.4
|
)
|
|
(100.4
|
)
|
Balance at March 31, 2016
|
$
|
1,684.5
|
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
1,689.3
|
|
(A) The goodwill balance at
June 30, 2015
is net of accumulated impairment losses of
$42.7 million
related to the Employer Services segment.
Components of intangible assets, net, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
June 30,
|
|
|
2016
|
|
2015
|
Intangible assets:
|
|
|
|
|
Software and software licenses
|
|
$
|
1,758.3
|
|
|
$
|
1,648.7
|
|
Customer contracts and lists
|
|
603.9
|
|
|
625.4
|
|
Other intangibles
|
|
206.9
|
|
|
209.0
|
|
|
|
2,569.1
|
|
|
2,483.1
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
Software and software licenses
|
|
(1,375.5
|
)
|
|
(1,308.7
|
)
|
Customer contracts and lists
|
|
(483.6
|
)
|
|
(478.6
|
)
|
Other intangibles
|
|
(196.1
|
)
|
|
(192.6
|
)
|
|
|
(2,055.2
|
)
|
|
(1,979.9
|
)
|
Intangible assets, net
|
|
$
|
513.9
|
|
|
$
|
503.2
|
|
Other intangibles consist primarily of purchased rights and trademarks (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is
5 years
(
4 years
for software and software licenses,
9 years
for customer contracts and lists, and
2 years
for other intangibles). Amortization of intangible assets was
$39.6 million
and
$38.2 million
for the three months ended
March 31, 2016
and
2015
, respectively, and
$113.3 million
for the nine months ended
March 31, 2016
and
2015
.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
|
|
|
|
|
|
Amount
|
Three months ending June 30, 2016
|
$
|
39.2
|
|
Twelve months ending June 30, 2017
|
$
|
146.1
|
|
Twelve months ending June 30, 2018
|
$
|
106.3
|
|
Twelve months ending June 30, 2019
|
$
|
72.0
|
|
Twelve months ending June 30, 2020
|
$
|
54.2
|
|
Twelve months ending June 30, 2021
|
$
|
37.7
|
|
Note 8. Short-term Financing
The Company has a
$2.75 billion
,
364
-day credit agreement with a group of lenders that matures in
June 2016
. In addition, the Company has a
five
-year
$3.25 billion
credit facility maturing in
June 2019
that contains an accordion feature under which the aggregate commitment can be increased by
$500.0 million
, subject to the availability of additional commitments. The Company also has a
$2.25 billion
five
-year credit facility that matures in
June 2020
that also contains an accordion feature under which the aggregate commitment can be increased by
$500.0 million
, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the effective federal funds rate, or the prime rate, depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit facilities. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The Company had
no
borrowings through
March 31, 2016
under the credit facilities.
The Company’s U.S. short-term funding requirements related to client funds are sometimes obtained through a commercial paper program, which provides for the issuance of up to
$8.25 billion
in aggregate maturity value of commercial paper, rather than liquidating investments in available-for-sale securities related to previously-collected client funds. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from
overnight to up to 364 days
. At
March 31, 2016
and
June 30, 2015
, the Company had
no
commercial paper outstanding. For the three months ended
March 31, 2016
and
2015
, the Company had average daily borrowings of
$1.3 billion
and
$1.0 billion
, respectively, at weighted average
interest rates of
0.4%
and
0.1%
, respectively. For the
nine months ended
March 31, 2016
and
2015
, the Company had average daily borrowings of
$2.7 billion
and
$2.4 billion
, respectively, at weighted average interest rates of
0.2%
and
0.1%
, respectively. The weighted average maturity of the Company’s commercial paper during the three and
nine months ended
March 31, 2016
was approximately
one day
and
two days
, respectively.
The Company’s U.S. and Canadian 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 investments in available-for-sale securities related to previously-collected client funds. These agreements generally have terms ranging from
overnight to up to five business days
. At
March 31, 2016
and
June 30, 2015
, there were
no
outstanding obligations related to the reverse repurchase agreements. For the three months ended
March 31, 2016
and
2015
, the Company had average outstanding balances under reverse repurchase agreements of
$128.0 million
and
$93.0 million
, respectively, at weighted average interest rates of
0.5%
and
0.7%
, respectively. For the
nine months ended
March 31, 2016
and
2015
, the Company had average outstanding balances under reverse repurchase agreements of
$316.9 million
and
$423.2 million
, respectively, at weighted average interest rates of
0.4%
and
0.5%
, respectively. In addition, the Company has
$3.25 billion
available on a committed basis under the U.S. reverse repurchase agreements.
Note 9. Long-term Debt
In
September 2015
, the Company issued fixed-rate notes with
5
-year and
10
-year maturities for an aggregate principal amount of
$2.0 billion
(collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, semi-annually.
The principal amounts and associated effective interest rates of the Notes and other debt as of
March 31, 2016
, are as follows. Debt outstanding at the comparative period of June 30, 2015 was not significant.
|
|
|
|
|
|
|
|
|
Debt instrument
|
|
March 31, 2016
|
|
Effective Interest Rate
|
Fixed-rate 2.250% notes due September 15, 2020
|
|
$
|
1,000.0
|
|
|
2.39
|
%
|
Fixed-rate 3.375% notes due September 15, 2025
|
|
1,000.0
|
|
|
3.48
|
%
|
Other
|
|
22.8
|
|
|
|
|
|
2,022.8
|
|
|
|
Less: current portion
|
|
(2.5
|
)
|
|
|
Less: unamortized discount and debt issuance costs
|
|
(12.6
|
)
|
|
|
Total long-term debt
|
|
$
|
2,007.7
|
|
|
|
The effective interest rates for the Notes include the interest on the Notes and amortization of the discount and debt issuance costs.
As of
March 31, 2016
, the fair value of the Notes, based on level 2 inputs, was
$2,098.3 million
. The Company’s Notes are valued utilizing a variety of inputs obtained from an independent pricing service, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. For a description of the fair value hierarchy and the Company's fair value methodologies see Note 1 "Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for fiscal
2015
.
Note 10
. Employee Benefit Plans
A. Stock-based Compensation Plans
Stock-based compensation consists of the following:
|
|
•
|
Stock Options.
Stock options are granted to employees at exercise prices equal to the fair market value of the Company's common stock on the dates of grant. Stock options are issued under a graded vesting schedule and have a term of
10 years
. Options granted prior to July 1, 2008 generally vested ratably over
five years
and options granted after July 1, 2008 generally vest ratably over
four years
. Compensation expense is measured based on the fair value of the stock option on the grant date and recognized over the requisite service period for each separately vesting portion of the stock option award. Stock options are forfeited if the employee ceases to be employed by the Company prior to vesting.
|
|
|
•
|
Time-Based Restricted Stock and Time-Based Restricted Stock Units.
Time-based restricted stock and time-based restricted stock units granted prior to fiscal 2013 are subject to vesting periods of up to
five years
and awards granted in fiscal 2013 and later are subject to a vesting period of
two years
. Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.
|
Time-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. Dividends are paid on shares awarded under the time-based restricted stock program.
Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock units is recorded over the vesting period and is initially based on the fair value of the award on the grant date; it is subsequently remeasured at each reporting date during the vesting period. No dividend equivalents are paid on units awarded under the time-based restricted stock unit program.
|
|
•
|
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units.
Performance-based restricted stock and performance-based restricted stock units generally vest over a
one
to
three
year performance period and a subsequent service period of up to
26 months
. Under these programs, the Company communicates "target awards" at the beginning of the performance period with possible payouts at the end of the performance period ranging from
0%
to
150%
of the "target awards." Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.
|
Performance-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock is recognized over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of shares awarded during the performance period based on probable and actual performance against targets. After the performance period, if the performance targets are achieved, employees are eligible to receive dividends during the remaining vesting period on shares awarded under the performance-based restricted stock program.
Performance-based restricted stock units are settled in either cash or stock, depending on the employee's home country, and cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recognized over the vesting period initially based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded during the performance period based on probable and actual performance against targets. In addition, compensation expense is remeasured at each reporting period during the vesting period based on the change in the Company's stock price. Compensation expense relating to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded based on the probable and actual performance against targets. Dividend equivalents are paid on awards settled in stock under the performance-based restricted stock unit program.
|
|
•
|
Employee Stock Purchase Plan.
The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to
95%
of the market value for the Company's common stock on the last day of the offering period. This plan has been deemed non-compensatory and, therefore, no compensation expense has been recorded.
|
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. The Company repurchased
3.8 million
and
7.5 million
shares in the three months ended
March 31, 2016
and
2015
, respectively, and repurchased
13.2 million
and
13.3 million
shares in the nine months ended
March 31, 2016
and
2015
, respectively. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.
The following table represents stock-based compensation expense and related income tax benefits for the three and nine months ended
March 31, 2016
and
2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating expenses
|
$
|
5.3
|
|
|
$
|
6.3
|
|
|
$
|
17.0
|
|
|
$
|
21.3
|
|
Selling, general and administrative expenses
|
22.6
|
|
|
24.6
|
|
|
72.7
|
|
|
73.4
|
|
System development and programming costs
|
3.8
|
|
|
4.9
|
|
|
12.7
|
|
|
16.0
|
|
Total pre-tax stock-based compensation expense
|
$
|
31.7
|
|
|
$
|
35.8
|
|
|
$
|
102.4
|
|
|
$
|
110.7
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
$
|
11.2
|
|
|
$
|
13.0
|
|
|
$
|
37.0
|
|
|
$
|
39.7
|
|
Stock-based compensation expense attributable to employees of the discontinued operations for the nine months ended
March 31, 2015
was
$5.4 million
which was included in discontinued operations in the Statements of Consolidated Earnings and therefore not presented in the table above.
As a result of the spin-off of CDK, the number of vested and unvested ADP stock options, their strike price, and the number of unvested performance-based and time-based restricted shares and units were adjusted to preserve the intrinsic value of the awards immediately prior to the spin-off using an adjustment ratio based on the market close price of ADP stock prior to the spin-off and the market open price of ADP stock subsequent to the spin-off. Since these adjustments were considered to be a modification of the awards in accordance to ASC 718, "Stock Compensation," the Company compared the fair value of the awards immediately prior to the spin-off to the fair value immediately after the spin-off to measure potential incremental stock-based compensation expense, if any. The adjustments did not result in an increase in the fair value of the awards and, accordingly, the Company did not record incremental stock-based compensation expense. Unvested ADP stock options, unvested restricted stock, and unvested restricted stock units held by CDK employees were replaced by CDK awards immediately following the spin-off. The stock-based compensation expense associated with the original grant of ADP awards to remaining ADP employees will continue to be recognized within earnings from continuing operations in the Company's Statements of Consolidated Earnings.
As of
March 31, 2016
, the total remaining unrecognized compensation cost related to unvested stock options, restricted stock units, and restricted stock awards amounted to
$15.5 million
,
$38.7 million
, and
$86.7 million
, respectively, which will be amortized over the weighted-average remaining requisite service periods of
1.9 years
,
1.3 years
, and
1.4 years
, respectively.
During the
nine months ended
March 31, 2016
, the following activity occurred under the Company’s existing plans:
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
Number
of Options
(in thousands)
|
|
Weighted
Average Price
(in dollars)
|
Options outstanding at July 1, 2015
|
|
5,888
|
|
|
$
|
55
|
|
Options granted
|
|
1,138
|
|
|
$
|
75
|
|
Options exercised
|
|
(1,711
|
)
|
|
$
|
41
|
|
Options canceled/forfeited
|
|
(175
|
)
|
|
$
|
70
|
|
Options outstanding at March 31, 2016
|
|
5,140
|
|
|
$
|
64
|
|
Time-Based Restricted Stock and Time-Based Restricted Stock Units:
|
|
|
|
|
|
|
|
|
|
Number of Shares
(in thousands)
|
|
Number of Units
(in thousands)
|
Restricted shares/units outstanding at July 1, 2015
|
|
2,137
|
|
|
486
|
|
Restricted shares/units granted
|
|
993
|
|
|
242
|
|
Restricted shares/units vested
|
|
(1,125
|
)
|
|
(245
|
)
|
Restricted shares/units forfeited
|
|
(112
|
)
|
|
(44
|
)
|
Restricted shares/units outstanding at March 31, 2016
|
|
1,893
|
|
|
439
|
|
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:
|
|
|
|
|
|
|
|
|
|
Number of Shares
(in thousands)
|
|
Number of Units
(in thousands)
|
Restricted shares/units outstanding at July 1, 2015
|
|
903
|
|
|
534
|
|
Restricted shares/units granted
|
|
286
|
|
|
354
|
|
Restricted shares/units vested
|
|
(540
|
)
|
|
(37
|
)
|
Restricted shares/units forfeited
|
|
(59
|
)
|
|
(43
|
)
|
Restricted shares/units outstanding at March 31, 2016
|
|
590
|
|
|
808
|
|
The fair value of each stock option issued is estimated on the date of grant using a binomial option pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.
The fair value for stock options granted was estimated at the date of grant using the following assumptions:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 31,
|
|
2016
|
|
2015
|
Risk-free interest rate
|
1.6
|
%
|
|
1.5
|
%
|
Dividend yield
|
2.6
|
%
|
|
2.3
|
%
|
Weighted average volatility factor
|
25.6
|
%
|
|
23.4
|
%
|
Weighted average expected life (in years)
|
5.4
|
|
|
5.4
|
|
Weighted average fair value (in dollars) (A)
|
$
|
13.16
|
|
|
$
|
14.29
|
|
(A) The weighted average fair values of grants issued before
September 30, 2014
were adjusted to reflect the impact of the
spin-off of CDK.
B. Pension Plans
The components of net pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost – benefits earned during the period
|
$
|
17.6
|
|
|
$
|
16.4
|
|
|
$
|
52.8
|
|
|
$
|
52.0
|
|
Interest cost on projected benefits
|
16.8
|
|
|
15.6
|
|
|
50.6
|
|
|
47.2
|
|
Expected return on plan assets
|
(32.8
|
)
|
|
(32.4
|
)
|
|
(98.5
|
)
|
|
(97.3
|
)
|
Net amortization and deferral
|
2.8
|
|
|
4.3
|
|
|
8.3
|
|
|
12.9
|
|
Curtailments and special termination benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
Net pension expense
|
$
|
4.4
|
|
|
$
|
3.9
|
|
|
$
|
13.2
|
|
|
$
|
18.0
|
|
Net pension expense for the
nine months ended
March 31, 2015
includes
$4.3 million
reported within earnings from discontinued operations on the Statements of Consolidated Earnings. Included within pension expense related to discontinued operations for the
nine months ended
March 31, 2015
were total one-time charges of
$3.2 million
for curtailment charges and special termination benefits directly attributable to the spin-off of CDK.
Note 11. Income Taxes
The effective tax rate for the three months ended
March 31, 2016
and
2015
was
33.0%
and
33.7%
, respectively. The decrease in the effective tax rate is due to adjustments to the tax liability in the three months ended
March 31, 2016
, partially offset by the resolution of certain tax matters during the three months ended
March 31, 2015
.
The effective tax rate for the
nine months ended
March 31, 2016
and
2015
was
33.0%
and
33.7%
, respectively. The decrease in the effective tax rate is due to an increase in foreign tax credits and adjustments to the tax liability in the
nine months ended
March 31, 2016
, partially offset by the resolution of certain tax matters during the
nine months ended
March 31, 2015
.
Note 12
. Commitments and Contingencies
During the second quarter of fiscal 2016, in the course of a compliance review of its clients and vendors globally, which is still ongoing, the Company determined that subsidiaries of the Company had previously entered into service arrangements outside the United States of America ("U.S.") with several entities that are designated as Specially Designated Nationals (“SDNs”) by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury. Under these service arrangements, the Company provided managed service solutions to the SDNs. Immediately following the discovery of such service arrangements, the Company terminated the service arrangements with each SDN. The Company has voluntarily notified OFAC of the service arrangements and intends to cooperate fully with OFAC. The Company may be subject to fines and penalties, which amounts are not reasonably estimable at this time due to the ongoing nature of the compliance review and the factors that OFAC may consider relevant. For more information regarding this matter, see below in Part II Item 5,
Other Information
of this Quarterly Report on Form 10-Q.
In June 2011, the Company received a Commissioner’s Charge from the U.S. Equal Employment Opportunity Commission (“EEOC”) alleging that the Company has violated Title VII of the Civil Rights Act of 1964 by refusing to recruit, hire, transfer, and promote certain persons on the basis of their race, in the State of Illinois from at least the period of January 1, 2007 to the present. The Company continues to investigate the allegations set forth in the Commissioner’s Charge and is cooperating with the EEOC’s investigation.
The Company is subject to various claims, litigation, and regulatory and compliance related matters in the normal course of business. When a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its best estimate for the ultimate loss. At this time, the Company is unable to estimate any reasonably possible loss, or range of reasonably possible loss, with respect to the matters described above. This is primarily because these matters involve complex issues subject to inherent uncertainty. There can be no assurance that these matters will be resolved in a manner that is not adverse to the Company.
It is not the Company’s business practice to enter into off-balance sheet arrangements. In the normal course of business, the Company may enter into contracts in which it makes representations and warranties that relate to the performance of the Company’s services and products. The Company does not expect any material losses related to such representations and warranties.
Note 13. Reclassifications out of Accumulated Other Comprehensive Income ("AOCI")
Changes in AOCI by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2016
|
|
Currency Translation Adjustment
|
|
Net Gains/Losses on Available-for-sale Securities
|
|
Pension Liability
|
|
Accumulated Other Comprehensive Loss
|
Balance at December 31, 2015
|
$
|
(274.7
|
)
|
|
$
|
68.1
|
|
|
$
|
(172.5
|
)
|
|
$
|
(379.1
|
)
|
Other comprehensive income
before reclassification adjustments
|
41.2
|
|
|
271.8
|
|
|
—
|
|
|
313.0
|
|
Tax effect
|
—
|
|
|
(95.9
|
)
|
|
—
|
|
|
(95.9
|
)
|
Reclassification adjustments to
net earnings
|
—
|
|
|
0.1
|
|
(A)
|
3.0
|
|
(B)
|
3.1
|
|
Tax effect
|
—
|
|
|
(0.1
|
)
|
|
(1.0
|
)
|
|
(1.1
|
)
|
Balance at March 31, 2016
|
$
|
(233.5
|
)
|
|
$
|
244.0
|
|
|
$
|
(170.5
|
)
|
|
$
|
(160.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2015
|
|
Currency Translation Adjustment
|
|
Net Gains/Losses on Available-for-sale Securities
|
|
Pension Liability
|
|
Accumulated Other Comprehensive Loss
|
Balance at December 31, 2014
|
$
|
(154.4
|
)
|
|
$
|
163.7
|
|
|
$
|
(124.0
|
)
|
|
$
|
(114.7
|
)
|
Other comprehensive (loss)/income
before reclassification adjustments
|
(108.7
|
)
|
|
128.9
|
|
|
—
|
|
|
20.2
|
|
Tax effect
|
—
|
|
|
(44.4
|
)
|
|
—
|
|
|
(44.4
|
)
|
Reclassification adjustments to
net earnings
|
—
|
|
|
(0.7
|
)
|
(A)
|
3.9
|
|
(B)
|
3.2
|
|
Tax effect
|
—
|
|
|
0.2
|
|
|
(1.5
|
)
|
|
(1.3
|
)
|
Balance at March 31, 2015
|
$
|
(263.1
|
)
|
|
$
|
247.7
|
|
|
$
|
(121.6
|
)
|
|
$
|
(137.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 31, 2016
|
|
Currency Translation Adjustment
|
|
Net Gains/Losses on Available-for-sale Securities
|
|
Pension Liability
|
|
Accumulated Other Comprehensive Loss
|
Balance at June 30, 2015
|
$
|
(228.3
|
)
|
|
$
|
143.9
|
|
|
$
|
(176.2
|
)
|
|
$
|
(260.6
|
)
|
Other comprehensive (loss)/income
before reclassification adjustments
|
(5.2
|
)
|
|
150.8
|
|
|
—
|
|
|
145.6
|
|
Tax effect
|
—
|
|
|
(53.3
|
)
|
|
—
|
|
|
(53.3
|
)
|
Reclassification adjustments to
net earnings
|
—
|
|
|
3.9
|
|
(A)
|
8.9
|
|
(B)
|
12.8
|
|
Tax effect
|
—
|
|
|
(1.3
|
)
|
|
(3.2
|
)
|
|
(4.5
|
)
|
Balance at March 31, 2016
|
$
|
(233.5
|
)
|
|
$
|
244.0
|
|
|
$
|
(170.5
|
)
|
|
$
|
(160.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
March 31, 2015
|
|
Currency Translation Adjustment
|
|
Net Gains/Losses on Available-for-sale Securities
|
|
Pension Liability
|
|
Accumulated Other Comprehensive Income/(Loss)
|
Balance at June 30, 2014
|
$
|
99.5
|
|
|
$
|
211.6
|
|
|
$
|
(132.9
|
)
|
|
$
|
178.2
|
|
Other comprehensive (loss)/income
before reclassification adjustments
|
(274.4
|
)
|
|
54.2
|
|
|
—
|
|
|
(220.2
|
)
|
Tax effect
|
—
|
|
|
(16.6
|
)
|
|
—
|
|
|
(16.6
|
)
|
Reclassification adjustments to
net earnings
|
—
|
|
|
(2.3
|
)
|
(A)
|
17.2
|
|
(B)
|
14.9
|
|
Tax effect
|
—
|
|
|
0.8
|
|
|
(5.9
|
)
|
|
(5.1
|
)
|
Reclassification adjustment to
retained earnings
|
(88.2
|
)
|
(C)
|
—
|
|
|
—
|
|
|
(88.2
|
)
|
Balance at March 31, 2015
|
$
|
(263.1
|
)
|
|
$
|
247.7
|
|
|
$
|
(121.6
|
)
|
|
$
|
(137.0
|
)
|
(A) Reclassification adjustments out of AOCI are included within Other income, net, on the Statements of Consolidated Earnings.
(B) Reclassification adjustments out of AOCI are included in net pension expense (see
Note 10
).
(C) Reclassification adjustment out of AOCI is related to the CDK spin-off and included in retained earnings on the Consolidated Balance Sheets.
Note 14
. Interim Financial Data by Segment
Based upon similar economic and operational characteristics, the Company’s strategic business units have been aggregated into the following
two
reportable segments: Employer Services and PEO Services. The primary components of the “Other” segment are the results of operations of ADP Indemnity (a wholly-owned captive insurance company that provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services' worksite employees), non-recurring gains and losses, miscellaneous processing services, the elimination of intercompany transactions, interest expense, certain charges and expenses that have not been allocated to the reportable segments, such as stock-based compensation expense, and beginning in the first quarter of fiscal 2016, the historical results of the AMD business, which was previously reported in the Employer Services segment. This change, which is adjusted for both the current period and the prior period in the table below, did not significantly affect reportable segment results and is consistent with the way the chief operating decision maker assesses the performance of the reportable segments.
Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility. There is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of
4.5%
. This allocation is made for management reasons so that the reportable segments' results are presented on a consistent basis without the impact of fluctuations in interest rates. This reconciling adjustment to the reportable segments' revenues and earnings from continuing operations before income taxes is eliminated in consolidation.
Segment Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from
Continuing Operations
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Employer Services
|
$
|
2,576.7
|
|
|
$
|
2,446.4
|
|
|
$
|
6,920.1
|
|
|
$
|
6,660.0
|
|
PEO Services
|
866.3
|
|
|
748.5
|
|
|
2,305.2
|
|
|
1,969.2
|
|
Other
|
(2.8
|
)
|
|
16.0
|
|
|
5.0
|
|
|
52.9
|
|
Reconciling item:
|
|
|
|
|
|
|
|
Client fund interest
|
(191.6
|
)
|
|
(186.6
|
)
|
|
(460.8
|
)
|
|
(438.1
|
)
|
|
$
|
3,248.6
|
|
|
$
|
3,024.3
|
|
|
$
|
8,769.5
|
|
|
$
|
8,244.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations
before Income Taxes
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Employer Services
|
$
|
971.4
|
|
|
$
|
931.3
|
|
|
$
|
2,195.7
|
|
|
$
|
2,135.6
|
|
PEO Services
|
97.9
|
|
|
80.5
|
|
|
280.2
|
|
|
226.2
|
|
Other
|
(82.9
|
)
|
|
(85.3
|
)
|
|
(207.4
|
)
|
|
(234.6
|
)
|
Reconciling item:
|
|
|
|
|
|
|
|
|
Client fund interest
|
(191.6
|
)
|
|
(186.6
|
)
|
|
(460.8
|
)
|
|
(438.1
|
)
|
|
$
|
794.8
|
|
|
$
|
739.9
|
|
|
$
|
1,807.7
|
|
|
$
|
1,689.1
|
|