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 September 30, 2022

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 ý

The number of shares outstanding of the registrant’s common stock as of October 28, 2022 was 414,827,769.

Table of Contents

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Statements of Consolidated Earnings Three months ended September 30, 2022 and 2021	3
	Statements of Consolidated Comprehensive Income Three months ended September 30, 2022 and 2021	4
	Consolidated Balance Sheets At September 30, 2022 and June 30, 2022	5
	Statements of Consolidated Cash Flows Three months ended September 30, 2022 and 2021	6
	Notes to the Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	39
	Signatures	40

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
	September 30,
	2022		2021
REVENUES:
Revenues, other than interest on funds held      for clients and PEO revenues	$	2,646.5	$	2,467.7
Interest on funds held for clients	141.0		101.1
PEO revenues (A)	1,428.1		1,263.5
TOTAL REVENUES	4,215.6		3,832.3
EXPENSES:
Costs of revenues:
Operating expenses	2,074.4		1,930.8
Systems development and programming costs	209.8		188.8
Depreciation and amortization	109.4		103.0
TOTAL COSTS OF REVENUES	2,393.6		2,222.6
Selling, general, and administrative expenses	800.3		719.2
Interest expense	51.2		18.5
TOTAL EXPENSES	3,245.1		2,960.3
Other (income)/expense, net	(39.5)		(28.8)
EARNINGS BEFORE INCOME TAXES	1,010.0		900.8
Provision for income taxes	231.0		200.3
NET EARNINGS	$	779.0	$	700.5
BASIC EARNINGS PER SHARE	$	1.88	$	1.66
DILUTED EARNINGS PER SHARE	$	1.87	$	1.65
Basic weighted average shares outstanding	414.6		421.4
Diluted weighted average shares outstanding	416.9		423.8

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $15,534.2 million and $13,263.2 million for the three months ended September 30, 2022 and 2021, 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
	September 30,
	2022		2021
Net earnings	$	779.0	$	700.5
Other comprehensive (loss)/income:
Currency translation adjustments	(84.7)		(35.1)
Unrealized net (losses)/gains on available-for-sale securities	(835.1)		(130.3)
Tax effect	185.8		29.3
Reclassification of net losses/(gains) on available-for-sale securities to net earnings	1.5		(0.1)
Tax effect	(0.3)		—
Amortization of unrealized losses on cash flow hedging activities	1.1		1.1
Tax effect	(0.3)		(0.3)
Reclassification of pension liability adjustment to net earnings	2.1		2.2
Tax effect	(0.5)		(0.3)
Other comprehensive (loss)/income, net of tax	(730.4)		(133.5)
Comprehensive income	$	48.6	$	567.0

See notes to the Consolidated Financial Statements.

4

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

	September 30,		June 30,
	2022		2022
Assets
Current assets:
Cash and cash equivalents	$	1,207.7	$	1,436.3
Accounts receivable, net of allowance for doubtful accounts of $52.5 and $56.8, respectively	2,939.2		3,170.6
Other current assets	884.0		628.8
Total current assets before funds held for clients	5,030.9		5,235.7
Funds held for clients	32,937.9		49,569.2
Total current assets	37,968.8		54,804.9
Long-term receivables, net of allowance for doubtful accounts of $0.1 and $0.1, respectively	8.2		9.1
Property, plant and equipment, net	645.1		652.6
Operating lease right-of-use asset	419.0		450.9
Deferred contract costs	2,546.5		2,579.7
Other assets	1,135.0		937.4
Goodwill	2,273.4		2,300.5
Intangible assets, net	1,368.7		1,333.1
Total assets	$	46,364.7	$	63,068.2
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	82.7	$	110.2
Accrued expenses and other current liabilities	2,165.1		2,107.8
Accrued payroll and payroll-related expenses	501.2		862.6
Dividends payable	428.8		429.6
Short-term deferred revenues	172.3		188.2
Obligations under reverse repurchase agreements (A)	167.6		136.4
Income taxes payable	176.8		38.4
Total current liabilities before client funds obligations	3,694.5		3,873.2
Client funds obligations	35,471.7		51,285.5
Total current liabilities	39,166.2		55,158.7
Long-term debt	2,987.6		2,987.1
Operating lease liabilities	348.5		370.9
Other liabilities	902.1		924.2
Deferred income taxes	66.0		67.0
Long-term deferred revenues	317.8		335.0
Total liabilities	43,788.2		59,842.9
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 September 30, 2022 and June 30, 2022;  outstanding, 415.2 and 416.1 shares at September 30, 2022 and June 30, 2022, respectively	63.9		63.9
Capital in excess of par value	1,893.1		1,794.2
Retained earnings	21,039.0		20,696.3
Treasury stock - at cost: 223.6 and 222.7 shares at September 30, 2022 and June 30, 2022, respectively	(17,695.4)		(17,335.4)
Accumulated other comprehensive (loss)/ income	(2,724.1)		(1,993.7)
Total stockholders’ equity	2,576.5		3,225.3
Total liabilities and stockholders’ equity	$	46,364.7	$	63,068.2

(A) As of September 30, 2022, $167.0 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. As of June 30, 2022, $14.3 million of short-term marketable securities and $122.1 million of long-term marketable securities have been pledged as collateral under the Company's reverse repurchase agreements (see Note 9).

See notes to the Consolidated Financial Statements.

5

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

	Three Months Ended
	September 30,
	2022		2021
Cash Flows from Operating Activities:
Net earnings	$	779.0	$	700.5
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Depreciation and amortization	135.1		129.1
Amortization of deferred contract costs	243.5		237.3
Deferred income taxes	20.5		25.6
Stock-based compensation expense	50.6		42.3
Net pension income	(9.3)		(15.8)
Net amortization of premiums and accretion of discounts on available-for-sale securities	16.0		22.7
Other	10.6		1.9
Changes in operating assets and liabilities:
Decrease/(Increase) in accounts receivable	201.5		(51.8)
Increase in other assets	(504.0)		(494.2)
Decrease in accounts payable	(30.7)		(61.9)
Decrease in accrued expenses and other liabilities	(194.7)		(413.8)
Net cash flows provided by operating activities	718.1		121.9
Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities	(3,064.5)		(2,412.6)
Proceeds from the sales and maturities of corporate and client funds marketable securities	1,618.6		1,279.1
Capital expenditures	(45.4)		(35.9)
Additions to intangibles	(86.3)		(93.2)
Proceeds from sale of property, plant, and equipment and other assets	—		26.2
Net cash flows used in investing activities	(1,577.6)		(1,236.4)
Cash Flows from Financing Activities:
Net (decrease)/increase in client funds obligations	(15,592.0)		12,100.6
Payments of debt	(0.2)		(0.2)
Repurchases of common stock	(333.3)		(528.0)
Net proceeds from stock purchase plan and stock-based compensation plans	1.0		(16.7)
Dividends paid	(432.9)		(393.2)
Net proceeds related to reverse repurchase agreements	54.8		22.3
Net cash flows (used in)/provided by financing activities	(16,302.6)		11,184.8
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents	(44.9)		(21.2)
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents	(17,207.0)		10,049.1
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period	22,783.0		13,143.2
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period	$	5,576.0	$	23,192.3
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents	$	1,207.7	$	1,602.1
Restricted cash and restricted cash equivalents included in funds held for clients (A)	4,368.3		21,590.2
Total cash, cash equivalents, restricted cash, and restricted cash equivalents	$	5,576.0	$	23,192.3
Supplemental disclosures of cash flow information:
Cash paid for interest	$	56.7	$	23.9
Cash paid for income taxes, net of income tax refunds	$	57.5	$	55.0

(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, 2022 (“fiscal 2022”). Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's presentation.

Note 2.  New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

None.

Recently Issued Accounting Pronouncements

None.

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 funds 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.

The following tables provide details of revenue by our strategic pillars, and include a reconciliation to the Company’s reportable segments:

7

	Three Months Ended
	September 30,
Types of Revenues	2022		2021
HCM	$	1,811.0	$	1,666.7
HRO, excluding PEO zero-margin benefits pass-throughs	777.3		679.3
PEO zero-margin benefits pass-throughs	945.8		839.5
Global	540.5		545.7
Interest on funds held for clients	141.0		101.1
Total Revenues	$	4,215.6	$	3,832.3

Reconciliation of disaggregated revenue to our reportable segments for the three months ended September 30, 2022:

Types of Revenues	Employer Services		PEO		Other		Total
HCM	$	1,813.2	$	—	$	(2.2)	$	1,811.0
HRO, excluding PEO zero-margin benefits pass-throughs	296.8		482.3		(1.8)		777.3
PEO zero-margin benefits pass-throughs	—		945.8		—		945.8
Global	540.5		—		—		540.5
Interest on funds held for clients	139.7		1.3		—		141.0
Total Segment Revenues	$	2,790.2	$	1,429.4	$	(4.0)	$	4,215.6

Reconciliation of disaggregated revenue to our reportable segments for the three months ended September 30, 2021:

Types of Revenues	Employer Services		PEO		Other		Total
HCM	$	1,669.1	$	—	$	(2.4)	$	1,666.7
HRO, excluding PEO zero-margin benefits pass-throughs	256.2		424.0		(0.9)		679.3
PEO zero-margin benefits pass-throughs	—		839.5		—		839.5
Global	545.7		—		—		545.7
Interest on funds held for clients	100.5		0.6		—		101.1
Total Segment Revenues	$	2,571.5	$	1,264.1	$	(3.3)	$	3,832.3

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 short-term deferred revenues related to set up fees for the three months ended September 30, 2022 were as follows:

Contract Liability
Contract liability, July 1, 2022	$	468.2
Recognition of revenue included in beginning of year contract liability	(35.6)
Contract liability, net of revenue recognized on contracts during the period	29.9
Currency translation adjustments	(12.1)
Contract liability, September 30, 2022	$	450.4

8

Note 4.  Earnings per Share (“EPS”)

	Basic		Effect of Employee Stock Option Shares	Effect of Employee Restricted Stock Shares	Diluted
Three Months Ended September 30, 2022
Net earnings	$	779.0			$	779.0
Weighted average shares (in millions)	414.6		1.1	1.2	416.9
EPS	$	1.88			$	1.87
Three Months Ended September 30, 2021
Net earnings	$	700.5			$	700.5
Weighted average shares (in millions)	421.4		1.2	1.2	423.8
EPS	$	1.66			$	1.65

Stock Options to purchase 0.3 million and 0.3 million shares of common stock for the three months ended September 30, 2022 and 2021, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Note 5. Other (Income)/Expense, Net

	Three Months Ended
	September 30,
	2022		2021
Interest income on corporate funds	$	(29.7)	$	(9.7)
Realized losses/(gains) on available-for-sale securities, net	1.5		(0.1)
Impairment of assets	0.3		—
Gain on sale of assets	—		(1.3)
Non-service components of pension income, net (see Note 11)	(11.6)		(17.7)
Other (income)/expense, net	$	(39.5)	$	(28.8)

9

Note 6. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at September 30, 2022 and June 30, 2022 were as follows:

	September 30, 2022
	Amortized Cost		Gross Unrealized  Gains		Gross Unrealized Losses		Fair Market Value (A)
Type of issue:
Money market securities, cash and other cash equivalents	$	5,576.0	$	—	$	—	$	5,576.0
Available-for-sale securities:
Corporate bonds	16,156.5		—		(1,572.8)		14,583.7
U.S. Treasury securities	6,756.6		—		(303.9)		6,452.7
Asset-backed securities	1,716.7		—		(81.8)		1,634.9
Canadian government obligations and Canadian government agency obligations	1,942.7		—		(149.9)		1,792.8
U.S. government agency securities	1,723.2		—		(199.7)		1,523.5
Canadian provincial bonds	940.6		0.3		(81.3)		859.6
Commercial mortgage-backed securities	807.8		—		(54.0)		753.8
Other securities	1,271.9		0.1		(112.0)		1,160.0
Total available-for-sale securities	31,316.0		0.4		(2,555.4)		28,761.0
Total corporate investments and funds held for clients	$	36,892.0	$	0.4	$	(2,555.4)	$	34,337.0

(A) Included within available-for-sale securities are corporate investments with fair values of $191.4 million and funds held for clients with fair values of $28,569.6 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.

	June 30, 2022
	Amortized  Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value (B)
Type of issue:
Money market securities, cash and other cash equivalents	$	22,783.0	$	—	$	—	$	22,783.0
Available-for-sale securities:
Corporate bonds	16,183.1		3.9		(1,083.0)		15,104.0
U.S. Treasury securities	5,003.6		2.2		(171.1)		4,834.7
Asset-backed securities	1,995.7		0.5		(58.8)		1,937.4
Canadian government obligations and Canadian government agency obligations	2,022.9		0.1		(123.5)		1,899.5
U.S. government agency securities	1,728.2		0.1		(138.2)		1,590.1
Canadian provincial bonds	994.3		0.4		(62.7)		932.0
Commercial mortgage-backed securities	858.7		0.3		(29.9)		829.1
Other securities	1,326.5		2.2		(63.9)		1,264.8
Total available-for-sale securities	30,113.0		9.7		(1,731.1)		28,391.6
Total corporate investments and funds held for clients	$	52,896.0	$	9.7	$	(1,731.1)	$	51,174.6

(B) Included within available-for-sale securities are corporate investments with fair values of $169.1 million and funds held for clients with fair values of $28,222.5 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.

10

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 2022. The Company concurred with and did not adjust the prices obtained from the independent pricing service. The Company had no available-for-sale securities included in Level 1 or Level 3 at September 30, 2022.

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 September 30, 2022, are as follows: 

	September 30, 2022
	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	$	(876.9)	$	9,807.2	$	(695.9)	$	4,775.7	$	(1,572.8)	$	14,582.9
U.S. Treasury securities	(131.7)		5,103.6		(172.2)		1,344.7		(303.9)		6,448.3
Asset-backed securities	(48.2)		1,363.3		(33.6)		248.6		(81.8)		1,611.9
Canadian government obligations and Canadian government agency obligations	(67.4)		982.6		(82.5)		806.9		(149.9)		1,789.5
U.S. government agency securities	(104.4)		795.7		(95.3)		727.8		(199.7)		1,523.5
Canadian provincial bonds	(41.0)		605.9		(40.3)		232.5		(81.3)		838.4
Commercial mortgage-backed securities	(44.8)		681.5		(9.2)		72.3		(54.0)		753.8
Other securities	(66.3)		911.3		(45.7)		236.4		(112.0)		1,147.7
	$	(1,380.7)	$	20,251.1	$	(1,174.7)	$	8,444.9	$	(2,555.4)	$	28,696.0

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, 2022, are as follows:

	June 30, 2022
	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	$	(824.0)	$	11,525.4	$	(259.0)	$	2,356.7	$	(1,083.0)	$	13,882.1
U.S. Treasury securities	(126.4)		2,919.6		(44.7)		464.6		(171.1)		3,384.2
Asset-backed securities	(52.6)		1,444.9		(6.2)		59.9		(58.8)		1,504.8
Canadian government obligations and Canadian government agency obligations	(110.0)		1,782.6		(13.5)		113.3		(123.5)		1,895.9
U.S. government agency securities	(75.3)		859.3		(62.9)		695.6		(138.2)		1,554.9
Canadian provincial bonds	(45.4)		726.9		(17.3)		133.2		(62.7)		860.1
Commercial mortgage-backed securities	(29.5)		802.8		(0.4)		4.3		(29.9)		807.1
Other securities	(42.6)		737.3		(21.3)		178.2		(63.9)		915.5
	$	(1,305.8)	$	20,798.8	$	(425.3)	$	4,005.8	$	(1,731.1)	$	24,804.6

At September 30, 2022, Corporate bonds include investment-grade debt securities with a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from October 2022 through September 2032.

At September 30, 2022, asset-backed securities include AAA-rated senior tranches of securities with predominantly prime collateral of fixed-rate auto loan, credit card, equipment lease, and rate reduction receivables with fair values of $866.6 million, $511.6 million, $217.1 million, and $39.3 million, respectively. These securities are collateralized by the cash flows of the

11

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 September 30, 2022.

At September 30, 2022, U.S. government agency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $947.2 million and $493.7 million, respectively. U.S. government agency securities represent senior, unsecured, non-callable debt that primarily carry ratings of Aaa by Moody's, and AA+ by Standard & Poor's, with maturities ranging from November 2022 through March 2032.

At September 30, 2022, U.S government agency commercial mortgage-backed securities of $753.8 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.

At September 30, 2022, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above with fair values of $518.8 million, AA-rated United Kingdom Gilt securities of $252.6 million, and AAA-rated supranational bonds of $230.2 million.

Classification of corporate investments on the Consolidated Balance Sheets is as follows:

	September 30,		June 30,
	2022		2022
Corporate investments:
Cash and cash equivalents	$	1,207.7	$	1,436.3
Short-term marketable securities (a)	24.4		47.0
Long-term marketable securities (b)	167.0		122.1
Total corporate investments	$	1,399.1	$	1,605.4

(a) - Short-term marketable securities are included within Other current assets on the Consolidated Balance Sheets.

(b) - Long-term marketable securities are included within Other assets on the Consolidated Balance Sheets.

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:

	September 30,		June 30,
	2022		2022
Funds held for clients:
Restricted cash and cash equivalents held to satisfy client funds obligations	$	4,368.3	$	21,346.7
Restricted short-term marketable securities held to satisfy client funds obligations	3,329.0		4,263.1
Restricted long-term marketable securities held to satisfy client funds obligations	25,240.6		23,959.4
Total funds held for clients	$	32,937.9	$	49,569.2

Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax, and other payee 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 $35,471.7 million and $51,285.5 million at September 30, 2022 and June 30, 2022, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purpose of satisfying the client funds obligations. Of the Company’s funds held for clients at September 30, 2022 and June 30, 2022, $30,130.7 million and $46,201.2 million, respectively, are held in the grantor trust. The liabilities held within the trust are intercompany liabilities to other Company subsidiaries and are eliminated in consolidation.

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 and cash equivalents related to client funds investments with original maturities of ninety days or less, within the beginning and ending balances of cash, cash equivalents, restricted cash, and restricted cash equivalents. The Company has reported the cash flows related to the

12

cash received from and paid on behalf of clients on a net basis within net increase / (decrease) in client funds obligations in the financing activities section of the Statements of Consolidated Cash Flows.

All available-for-sale securities were rated as investment grade at September 30, 2022.

Expected maturities of available-for-sale securities at September 30, 2022 are as follows:

One year or less	$	3,353.5
One year to two years	5,500.0
Two years to three years	5,774.3
Three years to four years	6,549.4
After four years	7,583.8
Total available-for-sale securities	$	28,761.0

Note 7.  Leases

The Company records leases on the Consolidated Balance Sheets as operating lease right-of-use (“ROU”) assets, records the current portion of operating lease liabilities within accrued expenses and other current liabilities and, separately, records long-term operating lease liabilities. The difference between total ROU assets and total lease liabilities is primarily attributable to pre-payments of our obligations and the recognition of various lease incentives.

The Company has entered into operating lease agreements for facilities and equipment. The Company's leases have remaining lease terms of up to approximately ten years.

The components of operating lease expense were as follows:

	Three Months Ended
	September 30,
	2022		2021
Operating lease cost	$	35.6	$	35.9
Short-term lease cost	0.3		0.3
Variable lease cost	3.0		2.5
Total operating lease cost	$	38.9	$	38.7

The following table provides supplemental cash flow information related to the Company's leases:

	Three Months Ended
	September 30,
	2022		2021
Cash paid for operating lease liabilities	$	33.5	$	33.1
Operating lease ROU assets obtained in exchange for new operating lease liabilities	$	12.4	$	19.5

Other information related to our operating lease liabilities is as follows:

	September 30,			June 30,
	2022			2022
Weighted-average remaining lease term (in years)	6			6
Weighted-average discount rate	2.2		%	2.2		%
Current operating lease liability	$	88.8		$	95.1

13

As of September 30, 2022, maturities of operating lease liabilities are as follows:

Nine months ending June 30, 2023	$	74.2
Twelve months ending June 30, 2024	90.6
Twelve months ending June 30, 2025	75.7
Twelve months ending June 30, 2026	65.5
Twelve months ending June 30, 2027	58.1
Thereafter	103.7
Total undiscounted lease obligations	467.8
Less: Imputed interest	(30.5)
Net lease obligations	$	437.3

Note 8. Goodwill and Intangible Assets, net

Changes in goodwill for the three months ended September 30, 2022 are as follows:

	Employer Services		PEO Services		Total
Balance at June 30, 2022	$	2,295.7	$	4.8	$	2,300.5
Currency translation adjustments	(27.1)		—		(27.1)
Balance at September 30, 2022	$	2,268.6	$	4.8	$	2,273.4

Components of intangible assets, net, are as follows:

	September 30,		June 30,
	2022		2022
Intangible assets:
Software and software licenses	$	3,355.2	$	3,271.3
Customer contracts and lists	1,103.5		1,104.7
Other intangibles	241.1		241.2
	4,699.8		4,617.2
Less accumulated amortization:
Software and software licenses	(2,278.0)		(2,251.9)
Customer contracts and lists	(818.8)		(798.9)
Other intangibles	(234.3)		(233.3)
	(3,331.1)		(3,284.1)
Intangible assets, net	$	1,368.7	$	1,333.1

Other intangibles consist primarily of purchased rights, trademarks and trade names (acquired directly or through acquisitions). All 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 (6 years for software and software licenses, 3 years for customer contracts and lists, and 2 years for other intangibles). Amortization of intangible assets was $92.3 million and $86.2 million for the three months ended September 30, 2022 and 2021, respectively.

14

Estimated future amortization expenses of the Company's existing intangible assets are as follows:

	Amount
Nine months ending June 30, 2023	$	329.8
Twelve months ending June 30, 2024	$	309.3
Twelve months ending June 30, 2025	$	216.0
Twelve months ending June 30, 2026	$	148.6
Twelve months ending June 30, 2027	$	123.1
Twelve months ending June 30, 2028	$	79.4

Note 9. Short-term Financing

The Company has a $3.75 billion, 364-day credit agreement that matures in June 2023 with a one year term-out option. The interest rate applicable to committed borrowings under each agreement is tied to SOFR, the effective funds rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company also has a $2.75 billion five year credit facility that matures in June 2024 that contains an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments. In addition, the Company has a five year $3.2 billion credit facility maturing in June 2026 that also contains an accordion feature under which the aggregate commitment can be increased by $500 mill