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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
 
FORM 10-Q
______________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2019

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to    
 
Commission File Number 1-5397
__________________________
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
__________________________
Delaware
22-1467904
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
One ADP Boulevard
 
Roseland,
NJ
07068
(Address of principal executive offices)
(Zip Code)
 
 
Registrant's telephone number, including area code: (973) 974-5000
__________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.10 Par Value
(voting)
ADP
NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý   No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ý   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The number of shares outstanding of the registrant’s common stock as of January 28, 2020 was 431,754,252.



Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Earnings
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
REVENUES:
 
 
 
 
 
 
 
Revenues, other than interest on funds held
for clients and PEO revenues
$
2,398.4

 
$
2,319.8

 
$
4,704.7

 
$
4,537.8

Interest on funds held for clients
137.7

 
129.1

 
271.5

 
247.6

PEO revenues (A)
1,133.4

 
1,043.5

 
2,189.0

 
2,017.3

TOTAL REVENUES
3,669.5

 
3,492.4

 
7,165.2

 
6,802.7

 
 
 
 
 
 
 
 
EXPENSES:
 

 
 

 
 

 
 

Costs of revenues:
 

 
 

 
 

 
 

Operating expenses
1,836.0

 
1,772.4

 
3,623.6

 
3,469.5

Systems development and programming costs
168.7

 
156.1

 
336.9

 
314.1

Depreciation and amortization
89.4

 
71.7

 
178.3

 
144.3

TOTAL COSTS OF REVENUES
2,094.1

 
2,000.2

 
4,138.8

 
3,927.9

 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
754.3

 
745.2

 
1,480.9

 
1,459.0

Interest expense
31.6

 
38.6

 
71.5

 
74.5

TOTAL EXPENSES
2,880.0

 
2,784.0

 
5,691.2

 
5,461.4

 
 
 
 
 
 
 
 
Other income, net
(46.0
)
 
(32.6
)
 
(100.6
)
 
(46.5
)
 
 
 
 
 
 
 
 
EARNINGS BEFORE INCOME TAXES
835.5

 
741.0

 
1,574.6

 
1,387.8

 
 
 
 
 
 
 
 
Provision for income taxes
183.9

 
182.8

 
340.6

 
324.2

 
 
 
 
 
 
 
 
NET EARNINGS
$
651.6

 
$
558.2

 
$
1,234.0

 
$
1,063.6

 
 
 
 
 
 
 
 
BASIC EARNINGS PER SHARE
$
1.51

 
$
1.28

 
$
2.86

 
$
2.44

 
 
 
 
 
 
 
 
DILUTED EARNINGS PER SHARE
$
1.50

 
$
1.27

 
$
2.84

 
$
2.42

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
431.5

 
435.7

 
432.1

 
436.2

Diluted weighted average shares outstanding
433.3

 
438.0

 
434.3

 
438.9


(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $12,371.6 million and $11,751.1 million for the three months ended December 31, 2019 and 2018, respectively, and $22,882.2 million and $21,380.5 million for the six months ended December 31, 2019 and 2018, respectively.












See notes to the Consolidated Financial Statements.

3



Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Comprehensive Income
(In millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
Net earnings
$
651.6

 
$
558.2

 
$
1,234.0

 
$
1,063.6

 
 
 
 
 
 
 
 
Other comprehensive income/(loss):
 
 
 
 
 
 
 
Currency translation adjustments
34.3

 
(24.7
)
 
(14.6
)
 
(47.6
)
 
 
 
 
 
 
 
 
Unrealized net gains/(losses) on available-for-sale securities
(35.5
)
 
168.3

 
60.6

 
118.0

Tax effect
7.5

 
(38.8
)
 
(13.3
)
 
(26.6
)
Reclassification of net (gain)/losses on available-for-sale securities to net earnings
(7.1
)
 
0.5

 
(9.4
)
 
1.4

Tax effect
1.6

 
(0.1
)
 
2.1

 
(0.3
)
 
 
 
 
 
 
 
 
Reclassification of pension liability adjustment to net earnings
1.9

 
26.2

 
0.2

 
26.3

Tax effect
(0.5
)
 
(6.3
)
 

 
(6.4
)
 
 
 
 
 
 
 
 
   Other
0.7

 

 
0.7

 

        Tax effect
(0.2
)
 

 
(0.2
)
 

 
 
 
 
 
 
 
 
Other comprehensive income, net of tax
2.7

 
125.1

 
26.1

 
64.8

Comprehensive income
$
654.3

 
$
683.3

 
$
1,260.1

 
$
1,128.4




























See notes to the Consolidated Financial Statements.

4


Automatic Data Processing, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
 
December 31,
 
June 30,
 
 
2019
 
2019
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,500.4

 
$
1,949.2

Short-term marketable securities
 
7.2

 
10.5

Accounts receivable, net of allowance for doubtful accounts of $53.1 and $54.9, respectively
 
2,587.9

 
2,439.3

Other current assets
 
660.9

 
509.1

Total current assets before funds held for clients
 
4,756.4

 
4,908.1

Funds held for clients
 
36,608.6

 
29,434.2

Total current assets
 
41,365.0

 
34,342.3

Long-term receivables, net of allowance for doubtful accounts of $0.5 and $0.4, respectively
 
21.6

 
23.8

Property, plant and equipment, net
 
761.3

 
764.2

Operating lease right-of-use asset
 
500.2

 

Deferred contract costs
 
2,397.3

 
2,428.5

Other assets
 
596.6

 
934.4

Goodwill
 
2,314.9

 
2,323.0

Intangible assets, net
 
1,102.5

 
1,071.5

Total assets
 
$
49,059.4

 
$
41,887.7

Liabilities and Stockholders' Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
132.9

 
$
125.5

Accrued expenses and other current liabilities
 
2,051.5

 
1,759.0

Accrued payroll and payroll-related expenses
 
428.7

 
721.1

Dividends payable
 
389.3

 
340.1

Short-term deferred revenues
 
210.4

 
220.7

Obligations under reverse repurchase agreements (A)
 

 
262.0

Short-term debt
 
1,001.6

 

Income taxes payable
 
38.1

 
54.8

Total current liabilities before client funds obligations
 
4,252.5

 
3,483.2

Client funds obligations
 
36,269.9

 
29,144.5

Total current liabilities
 
40,522.4

 
32,627.7

Long-term debt
 
1,003.0

 
2,002.2

Operating lease liabilities
 
360.2

 

Other liabilities
 
726.0

 
798.7

Deferred income taxes
 
702.4

 
659.9

Long-term deferred revenues
 
381.0

 
399.3

Total liabilities
 
43,695.0

 
36,487.8

 
 
 
 
 
Commitments and contingencies (Note 13)
 


 


 
 
 
 
 
Stockholders' equity:
 
 

 
 

Preferred stock, $1.00 par value: authorized, 0.3 shares; issued, none
 

 

Common stock, $0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at December 31, 2019 and June 30, 2019;
outstanding, 431.8 and 434.2 shares at December 31, 2019 and June 30, 2019, respectively
 
63.9

 
63.9

Capital in excess of par value
 
1,253.7

 
1,183.2

Retained earnings
 
17,987.6

 
17,500.6

Treasury stock - at cost: 206.9 and 204.5 shares at December 31, 2019 and June 30, 2019, respectively
 
(13,709.6
)
 
(13,090.5
)
Accumulated other comprehensive loss
 
(231.2
)
 
(257.3
)
Total stockholders’ equity
 
5,364.4

 
5,399.9

Total liabilities and stockholders’ equity
 
$
49,059.4

 
$
41,887.7



(A) As of June 30, 2019, $261.4 million of long-term marketable securities and $0.6 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements. Refer to Note 9.


See notes to the Consolidated Financial Statements.

5

Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Cash Flows
(In millions)
(Unaudited)



 
 
Six Months Ended
 
 
December 31,
 
 
2019
 
2018
 
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net earnings
 
$
1,234.0

 
$
1,063.6

Adjustments to reconcile net earnings to cash flows provided by operating activities:
 
 

 
 

Depreciation and amortization
 
234.9

 
196.5

Amortization of deferred contract costs
 
456.0

 
434.6

Deferred income taxes
 
44.1

 
33.0

Stock-based compensation expense
 
73.3

 
77.0

Net pension expense
 
(0.4
)
 
31.5

Net amortization of premiums and accretion of discounts on available-for-sale securities
 
26.3

 
27.4

Impairment of intangible assets
 

 
12.1

Gain on sale of assets
 
(2.1
)
 
(4.1
)
Other
 
6.5

 
18.1

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 

 
 

Increase in accounts receivable
 
(198.8
)
 
(670.0
)
Increase in other assets
 
(605.4
)
 
(594.4
)
Increase in accounts payable
 
12.3

 
19.0

(Decrease) / increase in accrued expenses and other liabilities
 
(149.8
)
 
287.2

Net cash flows provided by operating activities
 
1,130.9

 
931.5

 
 
 
 
 
Cash Flows from Investing Activities:
 
 

 
 

Purchases of corporate and client funds marketable securities
 
(2,875.3
)
 
(1,300.8
)
Proceeds from the sales and maturities of corporate and client funds marketable securities
 
2,995.2

 
1,163.4

Capital expenditures
 
(100.7
)
 
(80.0
)
Additions to intangibles
 
(167.7
)
 
(139.3
)
Acquisitions of businesses, net of cash acquired
 

 
(120.4
)
Proceeds from the sale of property, plant, and equipment and other assets
 
23.6

 
7.9

Net cash flows used in investing activities
 
(124.9
)
 
(469.2
)
 
 
 
 
 
Cash Flows from Financing Activities:
 
 

 
 

Net increase / (decrease) in client funds obligations
 
7,093.7

 
(1,567.1
)
Payments of debt
 
(1.1
)
 
(1.1
)
Repurchases of common stock
 
(615.1
)
 
(526.6
)
Net proceeds from stock purchase plan and stock-based compensation plans
 
(4.4
)
 
5.5

Dividends paid
 
(686.0
)
 
(605.0
)
Net payments of reverse repurchase agreements
 
(262.0
)
 

Net proceeds from commercial paper borrowings
 

 
1,206.0

Net cash flows provided by / (used in) financing activities
 
5,525.1

 
(1,488.3
)
 
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
 
(12.2
)
 
(32.1
)
 
 
 
 
 
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents
 
6,518.9

 
(1,058.1
)
 
 
 
 
 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period
 
6,796.2

 
6,542.1

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period
 
$
13,315.1

 
$
5,484.0

 
 
 
 
 
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
 
 
 
 
Cash and cash equivalents
 
$
1,500.4

 
$
2,785.6

Restricted cash and restricted cash equivalents included in funds held for clients (A)
 
11,814.7

 
2,698.4

Total cash, cash equivalents, restricted cash, and restricted cash equivalents
 
$
13,315.1

 
$
5,484.0

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest
 
$
70.6

 
$
73.3

Cash paid for income taxes, net of income tax refunds
 
$
350.4

 
$
280.3


(A) See Note 6 for a reconciliation of restricted cash and restricted cash equivalents in funds held for clients on the Consolidated Balance Sheets.


See notes to the Consolidated Financial Statements.

6


Automatic Data Processing, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts or where otherwise stated)
(Unaudited)
Note 1.  Basis of Presentation

The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc., its subsidiaries and variable interest entity (“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 Company has a grantor trust, which holds the majority of the funds provided by its clients pending remittance to employees of those clients, tax authorities, and other payees.  The Company is the sole beneficial owner of the trust.  The trust meets the criteria in Accounting Standards Codification (“ASC”) 810, “Consolidation” to be characterized as a variable interest entity (“VIE”).  The Company has determined that it has a controlling financial interest in the trust because it has both (1) the power to direct the activities that most significantly impact the economic performance of the trust (including the power to make all investment decisions for the trust) and (2) the right to receive benefits that could potentially be significant to the trust (in the form of investment returns) and, therefore, consolidates the trust.  Further information on these funds and the Company’s obligations to remit to its clients’ employees, tax authorities, and other payees is provided in Note 6, “Corporate Investments and Funds Held for Clients.” 

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. 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, 2019 (“fiscal 2019”).

Revision of Previously Reported Financial Information

The Company has historically classified certain fees collected from worksite employers for certain benefits within PEO revenues, and the associated costs of these benefits have historically been classified within operating expenses as PEO zero-margin benefits pass-through costs in the Company's Statements of Consolidated Earnings. During the quarter ended September 30, 2019, management determined that the Company does not retain risk and is acting as the agent, rather than as the primary obligor, for a portion of the fees collected for worksite employee benefits and the worksite employer is primarily responsible for fulfilling certain aspects of the service and has discretion in establishing price. Accordingly, the accompanying Statements of Consolidated Earnings for the three and six months ended December 31, 2018 have been revised to correct the amounts previously reported on a gross basis to a net basis by reducing PEO revenues and operating expenses for associated costs of an equal amount, as follows:
 
Three Months Ended
 
December 31, 2018
 
As reported
 
Revision
 
As revised
PEO revenues
$
1,057.0

 
(13.5
)
 
$
1,043.5

TOTAL REVENUES
3,505.9

 
(13.5
)
 
3,492.4

Operating expenses
1,785.9

 
(13.5
)
 
1,772.4

Total Expenses
2,797.5

 
(13.5
)
 
2,784.0

EARNINGS BEFORE INCOME TAXES
741.0

 

 
741.0

Provision for income taxes
182.8

 

 
182.8

NET EARNINGS
$
558.2

 

 
$
558.2



7


 
Six Months Ended
 
December 31, 2018
 
As reported
 
Revision
 
As revised
PEO revenues
$
2,043.7

 
(26.4
)
 
$
2,017.3

TOTAL REVENUES
6,829.1

 
(26.4
)
 
6,802.7

Operating expenses
3,495.9

 
(26.4
)
 
3,469.5

Total Expenses
5,487.8

 
(26.4
)
 
5,461.4

EARNINGS BEFORE INCOME TAXES
1,387.8

 

 
1,387.8

Provision for income taxes
324.2

 

 
324.2

NET EARNINGS
$
1,063.6

 

 
$
1063.6


The correction of these previously reported amounts had no impact on the Company's earnings before income taxes, net earnings, consolidated financial condition or cash flows. In addition, corresponding revisions have been made elsewhere in the Company's consolidated footnote disclosures, where applicable, including its Interim Financial Data by Segment disclosure.

Note 2.  New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective July 1, 2019, the Company adopted accounting standard update (“ASU”) 2016-02, “Leases (ASC 842)” under the optional transition method. As a result, the Company recorded on the Consolidated Balance Sheets total operating lease right-of-use (“ROU”) assets of $573.3 million and total operating lease liabilities of $522.6 million, as of the adoption date. The adoption did not have an impact on our Statements of Consolidated Earnings or Statements of Consolidated Cash Flows. Refer to Note 7 for further details.




















8


Recently Issued Accounting Pronouncements
The following table summarizes recent ASU's issued by the Financial Accounting Standards Board (“FASB”) which have been assessed:
Standard
Description
Effective Date
Effect on Financial Statements or Other Significant Matters
ASU 2018-14 Compensation-Retirement Benefits-Defined Benefit Plans
This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. 
July 1, 2021 (Fiscal 2022)
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
ASU 2018-13 Fair Value Measurement
This update modifies the disclosure requirements on fair value measurements. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis.
July 1, 2020 (Fiscal 2021)
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This update introduces the current expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. In addition, this update modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In November 2019, the FASB issued Accounting Standard Update 2019-11 Codification Improvements to Topic 326, Financial-Credit Losses which provides clarification and eliminates inconsistencies to amendments included in Update 2016-13.
July 1, 2020 (Fiscal 2021)
The adoption of this guidance will not have a material impact on its consolidated results of operations, financial condition, or cash flows.


Note 3.  Revenue

Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic pillars: Human Capital Management (“HCM”), HR Outsourcing (“HRO”), and Global (“Global”) Solutions, with separate disaggregation for PEO zero-margin benefits pass-through revenues and client fund interest revenues.  The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.


9


HCM provides a suite of product offerings that assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement. Global is generally consistent with the types of services provided within HCM but represents geographies outside of the United States and includes our multinational offerings. HCM and Global revenues are primarily attributable to fees for providing solutions for payroll, benefits, talent, retirement services and HR processing and fees charged to implement the Company's solutions for clients.

HRO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment insurance, among other human resources functions. This revenue is primarily driven by the PEO. Amounts collected from PEO worksite employers include payroll, fees for benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment taxes. The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company does not retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is primarily responsible for providing the service and has discretion in establishing wages. The fees collected from the worksite employers for benefits (i.e., PEO benefits pass-throughs), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company acts as a principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for fulfilling the service and has discretion in establishing price. The Company has further disaggregated HRO to separate out its PEO zero-margin benefits pass-through revenues.

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

The following tables provide details of revenue by our strategic pillars with disaggregation for PEO zero-margin benefits pass-throughs and client fund interest, and include a reconciliation to the Company’s reportable segments:
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
Types of Revenues
2019
 
2018
 
2019
 
2018
HCM
$
1,647.9

 
$
1,599.4

 
$
3,216.5

 
$
3,114.7

HRO, excluding PEO zero-margin benefits pass-throughs
650.1

 
614.2

 
1,241.2

 
1,176.7

PEO zero-margin benefits pass-throughs
722.4

 
659.7

 
1,421.5

 
1,300.2

Global
511.4

 
490.0

 
1,014.5

 
963.5

Interest on funds held for clients
137.7

 
129.1

 
271.5

 
247.6

Total Revenues
$
3,669.5

 
$
3,492.4

 
$
7,165.2

 
$
6,802.7



Reconciliation of disaggregated revenue to our reportable segments for the three months ended December 31, 2019:
Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
1,649.8

 
$

 
$
(1.9
)
 
$
1,647.9

HRO, excluding PEO zero-margin benefits pass-throughs
239.9

 
411.0

 
(0.8
)
 
650.1

PEO zero-margin benefits pass-throughs

 
722.4

 

 
722.4

Global
511.4

 

 

 
511.4

Interest on funds held for clients
136.4

 
1.3

 

 
137.7

Total Segment Revenues
$
2,537.5

 
$
1,134.7

 
$
(2.7
)
 
$
3,669.5



10


Reconciliation of disaggregated revenue to our reportable segments for the three months ended December 31, 2018:
Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
1,599.6

 
$

 
$
(0.2
)
 
$
1,599.4

HRO, excluding PEO zero-margin benefits pass-throughs
232.9

 
383.8

 
(2.5
)
 
614.2

PEO zero-margin benefits pass-throughs

 
659.7

 

 
659.7

Global
490.0

 

 

 
490.0

Interest on funds held for clients
127.9

 
1.2

 

 
129.1

Total Segment Revenues
$
2,450.4

 
$
1,044.7

 
$
(2.7
)
 
$
3,492.4


Reconciliation of disaggregated revenue to our reportable segments for the six months ended December 31, 2019:

Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
3,219.8

 
$

 
$
(3.3
)
 
$
3,216.5

HRO, excluding PEO zero-margin benefits pass-throughs
475.6

 
767.5

 
(1.9
)
 
1,241.2

PEO zero-margin benefits pass-throughs

 
1,421.5

 

 
1,421.5

Global
1,014.5

 

 

 
1,014.5

Interest on funds held for clients
269.0

 
2.5

 

 
271.5

Total Segment Revenues
$
4,978.9

 
$
2,191.5

 
$
(5.2
)
 
$
7,165.2


Reconciliation of disaggregated revenue to our reportable segments for the six months ended December 31, 2018:

Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
3,116.4

 
$

 
$
(1.7
)
 
$
3,114.7

HRO, excluding PEO zero-margin benefits pass-throughs
463.4

 
717.1

 
(3.8
)
 
1,176.7

PEO zero-margin benefits pass-throughs

 
1,300.2

 

 
1,300.2

Global
963.5

 

 

 
963.5

Interest on funds held for clients
245.3

 
2.3

 

 
247.6

Total Segment Revenues
$
4,788.6

 
$
2,019.6

 
$
(5.5
)
 
$
6,802.7



Contract Balances

The timing of revenue recognition for HCM, HRO and Global Solutions is consistent with the invoicing of clients, as invoicing occurs in the period the services are provided. Therefore, the Company does not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Changes in deferred revenue related to set up fees for the six months ended December 31, 2019 were as follows:
Contract Liability
 
Contract liability, July 1, 2019
$
563.4

Recognition of revenue included in beginning of year contract liability
(88.7
)
Contract liability, net of revenue recognized on contracts during the period
66.1

Currency adjustments
(4.0
)
Contract liability, December 31, 2019
$
536.8




11


Note 4.  Earnings per Share (“EPS”)
 
 
Basic
 
Effect of Employee Stock Option Shares
 
Effect of
Employee
Restricted
Stock
Shares
 
Diluted
Three Months Ended December 31, 2019
 
 

 
 

 
 

 
 

Net earnings
 
$
651.6

 
 

 
 

 
$
651.6

Weighted average shares (in millions)
 
431.5

 
1.1

 
0.7

 
433.3

EPS
 
$
1.51

 
 

 
 

 
$
1.50

Three Months Ended December 31, 2018
 
 

 
 

 
 

 
 

Net earnings
 
$
558.2

 
 

 
 

 
$
558.2

Weighted average shares (in millions)
 
435.7

 
1.2

 
1.1

 
438.0

EPS
 
$
1.28

 
 

 
 

 
$
1.27

 
 
 
 
 
 
 
 
 
Six Months Ended December 31, 2019
 
 
 
 
 
 
 
 
Net earnings
 
$
1,234.0

 
 

 
 

 
$
1,234.0

Weighted average shares (in millions)
 
432.1

 
1.1

 
1.1

 
434.3

EPS
 
$
2.86

 
 

 
 

 
$
2.84

Six Months Ended December 31, 2018
 
 

 
 

 
 

 
 

Net earnings
 
$
1,063.6

 
 

 
 

 
$
1,063.6

Weighted average shares (in millions)
 
436.2

 
1.3

 
1.4

 
438.9

EPS
 
$
2.44

 
 

 
 

 
$
2.42



Options to purchase 1.3 million and 0.8 million shares of common stock for the three months ended December 31, 2019 and 2018, respectively, and 1.0 million and 0.6 million shares of common stock for the six months ended December 31, 2019 and 2018, 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
 
Six Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
Interest income on corporate funds
$
(25.7
)
 
$
(28.1
)
 
$
(58.0
)
 
$
(56.6
)
Realized gains on available-for-sale securities
(7.6
)
 
(0.3
)
 
(10.1
)
 
(0.6
)
Realized losses on available-for-sale securities
0.5

 
0.8

 
0.7

 
2.0

Impairment of intangible assets

 

 

 
12.1

Gain on sale of assets

 
(4.1
)
 
(1.9
)
 
(4.1
)
Gain on sale of investment
(0.2
)
 

 
(0.2
)
 

Non-service components of pension expense, net (see Note 11)
(13.0
)
 
(0.9
)
 
(31.1
)
 
0.7

Other income, net
$
(46.0
)
 
$
(32.6
)
 
$
(100.6
)
 
$
(46.5
)


In fiscal 2019, the Company wrote down $12.1 million of internally developed software which was determined to have no future use due to redundant software identified as part of an acquisition. In addition, the Company recognized a gain of $4.1 million for the sale of assets in relation to the Service Alignment Initiative.


12



Note 6. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at December 31, 2019 and June 30, 2019 were as follows:
 
December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
Losses
 
 Fair Market Value (A)
Type of issue:
 
 
 
 
 
 
 
Money market securities, cash and other cash equivalents
$
13,315.1

 
$

 
$

 
$
13,315.1

Available-for-sale securities:
 
 
 
 
 
 
 
Corporate bonds
10,933.2

 
218.8

 
(2.9
)
 
11,149.1

Asset-backed securities
4,205.2

 
37.6

 
(3.5
)
 
4,239.3

U.S. Treasury securities
3,581.8

 
26.7

 
(3.8
)
 
3,604.7

U.S. government agency securities
2,046.7

 
20.9

 
(1.3
)
 
2,066.3

Canadian government obligations and Canadian government agency obligations
1,177.4

 
3.8

 
(6.2
)
 
1,175.0

Canadian provincial bonds
723.1

 
10.9

 
(0.6
)
 
733.4

Municipal bonds
586.9

 
19.0

 
(0.1
)
 
605.8

Other securities
1,208.1

 
20.8

 
(1.4
)
 
1,227.5

 
 
 
 
 
 
 
 
Total available-for-sale securities
24,462.4

 
358.5

 
(19.8
)
 
24,801.1

 
 
 
 
 
 
 
 
Total corporate investments and funds held for clients
$
37,777.5

 
$
358.5

 
$
(19.8
)
 
$
38,116.2


(A) Included within available-for-sale securities are corporate investments with fair values of $7.2 million and funds held for clients with fair values of $24,793.9 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.
 
June 30, 2019
 
Amortized 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market Value (B)
Type of issue:
 

 
 

 
 

 
 

Money market securities, cash and other cash equivalents
$
6,796.2

 
$

 
$

 
$
6,796.2

Available-for-sale securities: