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 statement of the Company’s results for the interim periods.
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 other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. All relevant footnotes have been adjusted for discontinued operations.
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 year ended
June 30, 2012
(“fiscal
2012
”).
Note 2. New Accounting Pronouncements
In July 2012, the Company adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The Company has elected to present net income and other comprehensive income on two separate, but consecutive statements. The adoption of ASU 2011-05 did not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.
In July 2012, the Company adopted ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that the fair value of a reporting unit is less than its carrying value based upon the qualitative assessment, it is necessary to perform the currently prescribed two-step goodwill impairment test. ASU 2011-08 does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. The adoption of ASU 2011-08 did not have an impact on the Company’s consolidated results of operations, financial condition, other comprehensive income, or cash flows.
Note 3. Earnings per Share (“EPS”)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
Effect of
Employee
Stock
Option
Shares
|
|
Effect of
Employee
Restricted
Stock
Shares
|
|
Diluted
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
$
|
302.5
|
|
|
|
|
|
|
$
|
302.5
|
|
Weighted average shares (in millions)
|
483.5
|
|
|
3.6
|
|
|
1.3
|
|
|
488.4
|
|
EPS from continuing operations
|
$
|
0.63
|
|
|
|
|
|
|
|
|
$
|
0.62
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations
|
$
|
300.4
|
|
|
|
|
|
|
|
|
$
|
300.4
|
|
Weighted average shares (in millions)
|
487.9
|
|
|
4.0
|
|
|
1.4
|
|
|
493.3
|
|
EPS from continuing operations
|
$
|
0.62
|
|
|
|
|
|
|
|
|
$
|
0.61
|
|
Options to purchase
0.9 million
and
0.6 million
shares of common stock for the
three months ended
September 30, 2012
and
2011
, respectively, were excluded from the calculation of diluted earnings per share because their exercise prices exceeded the average market price of outstanding common shares for the respective periods.
Note 4. Other Income, net
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30,
|
|
2012
|
|
2011
|
Interest income on corporate funds
|
$
|
(23.8
|
)
|
|
$
|
(29.6
|
)
|
Realized gains on available-for-sale securities
|
(4.9
|
)
|
|
(4.3
|
)
|
Realized losses on available-for-sale securities
|
0.4
|
|
|
0.3
|
|
Other, net
|
(0.8
|
)
|
|
(0.6
|
)
|
Other income, net
|
$
|
(29.1
|
)
|
|
$
|
(34.2
|
)
|
Note 5. Acquisitions
Assets acquired and liabilities assumed in business combinations were recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Statements of Consolidated Earnings since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions and subject to revision when the Company receives final information, including appraisals and other analysis. Accordingly, the measurement period for such purchase price allocations will end when the information, or the facts and circumstances, becomes available, but will not exceed twelve months.
The Company did not acquire any businesses during the
three months ended
September 30, 2012
.
The Company acquired
one
business during the
three months ended
September 30, 2011
for approximately
$2.7 million
, including a holdback to secure the fulfillment of certain contractual obligations of the sellers. The Company finalized the purchase price allocation for this acquisition during the
three months ended
September 30, 2012
and adjusted the preliminary values allocated to certain assets and liabilities in order to reflect the final information received. Refer to Note 11 for more information related to Goodwill and Intangible Assets, net.
In addition, the Company made contingent payments relating to previously consummated acquisitions of
$0.5 million
during the
three months ended
September 30, 2012
.
Note 6. Discontinued Operations
The Company is pursuing strategic alternatives for its Taxware Enterprise Service business, which provides tax content and compliance solutions for sales, use, and value added tax. During the
three months ended
September 30, 2012
, the Company concluded that the assets and liabilities, along with the results of operations and cash flows, of the disposal group should be classified as discontinued operations in the Statements of Consolidated Earnings, Statements of Consolidated Comprehensive Income and Statements of Consolidated Cash Flows. The assets and liabilities are carried on the Consolidated Balance Sheet at
September 30, 2012
, at their carrying amount. As management expects to sell the disposal group at an amount, net of costs to sell, that is greater than its carrying value, no impairment charge was recorded during the
three months ended
September 30, 2012
.
Operating results for discontinued operations were as follows:
|
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|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 30,
|
|
2012
|
|
2011
|
Revenues
|
$
|
12.9
|
|
|
$
|
11.6
|
|
Earnings from discontinued operations before income taxes
|
4.5
|
|
|
3.6
|
|
Provision for income taxes
|
1.7
|
|
|
1.3
|
|
Net earnings from discontinued operations
|
$
|
2.8
|
|
|
$
|
2.3
|
|
The following table details the assets and liabilities within the disposal group, which are classified as discontinued operations in the consolidated balance sheet as of
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
June 30,
|
|
2012
|
|
2012
|
Assets:
|
|
|
|
Accounts receivable, net
|
$
|
8.7
|
|
|
$
|
7.6
|
|
Goodwill
|
93.3
|
|
|
93.3
|
|
Intangible assets, net
|
22.0
|
|
|
22.9
|
|
Other assets
|
1.7
|
|
|
1.2
|
|
|
|
|
|
Total assets
|
$
|
125.7
|
|
|
$
|
125.0
|
|
|
|
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
0.2
|
|
|
$
|
0.4
|
|
Accrued expenses and other current liabilities
|
2.1
|
|
|
0.1
|
|
Accrued payroll and payroll related expenses
|
1.4
|
|
|
2.3
|
|
Deferred revenues
|
22.6
|
|
|
22.7
|
|
Deferred income taxes
|
3.4
|
|
|
3.5
|
|
|
|
|
|
Total liabilities
|
$
|
29.7
|
|
|
$
|
29.0
|
|
|
|
|
|
Note 7. Corporate Investments and Funds Held for Clients
Corporate investments and funds held for 2clients at
September 30, 2012
and
June 30, 2012
were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Type of issue:
|
|
|
|
|
|
|
|
Money market securities and other cash equivalents
|
$
|
3,725.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,725.9
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
6,379.1
|
|
|
273.8
|
|
|
—
|
|
|
6,652.9
|
|
Corporate bonds
|
7,239.2
|
|
|
337.5
|
|
|
(0.3
|
)
|
|
7,576.4
|
|
Canadian provincial bonds
|
653.2
|
|
|
40.3
|
|
|
—
|
|
|
693.5
|
|
Asset-backed securities
|
601.0
|
|
|
15.9
|
|
|
(0.1
|
)
|
|
616.8
|
|
Municipal bonds
|
522.2
|
|
|
33.2
|
|
|
—
|
|
|
555.4
|
|
Canadian government obligations and
Canadian government agency obligations
|
1,042.3
|
|
|
21.7
|
|
|
(0.6
|
)
|
|
1,063.4
|
|
Other securities
|
1,174.0
|
|
|
84.8
|
|
|
(0.2
|
)
|
|
1,258.6
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
17,611.0
|
|
|
807.2
|
|
|
(1.2
|
)
|
|
18,417.0
|
|
|
|
|
|
|
|
|
|
Total corporate investments and funds
held for clients
|
$
|
21,336.9
|
|
|
$
|
807.2
|
|
|
$
|
(1.2
|
)
|
|
$
|
22,142.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Type of issue:
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities and other cash equivalents
|
$
|
5,111.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,111.1
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
6,413.8
|
|
|
260.9
|
|
|
(0.1
|
)
|
|
6,674.6
|
|
Corporate bonds
|
7,097.2
|
|
|
272.3
|
|
|
(1.5
|
)
|
|
7,368.0
|
|
Canadian provincial bonds
|
620.8
|
|
|
35.4
|
|
|
(0.3
|
)
|
|
655.9
|
|
Asset-backed securities
|
533.9
|
|
|
14.5
|
|
|
—
|
|
|
548.4
|
|
Municipal bonds
|
522.0
|
|
|
31.0
|
|
|
(0.1
|
)
|
|
552.9
|
|
Canadian government obligations and
Canadian government agency obligations
|
994.2
|
|
|
23.4
|
|
|
(0.6
|
)
|
|
1,017.0
|
|
Other securities
|
1,201.0
|
|
|
75.7
|
|
|
(0.1
|
)
|
|
1,276.6
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
17,382.9
|
|
|
713.2
|
|
|
(2.7
|
)
|
|
18,093.4
|
|
|
|
|
|
|
|
|
|
Total corporate investments and funds
held for clients
|
$
|
22,494.0
|
|
|
$
|
713.2
|
|
|
$
|
(2.7
|
)
|
|
$
|
23,204.5
|
|
At
September 30, 2012
, U.S. Treasury and direct obligations of U.S. government agencies primarily include debt directly issued by Federal Home Loan Banks, Federal Farm Credit Banks, Federal National Mortgage Association ("Fannie Mae"), and Federal Home Loan Mortgage Corporation ("Freddie Mac") with fair values of
$4,100.2 million
,
$1,324.2 million
,
$393.3 million
, and
$281.2 million
, respectively. At
June 30, 2012
, U.S. Treasury and direct obligations of U. S. government agencies
primarily include debt directly issued by Federal Home Loan Banks, Federal Farm Credit Banks, Fannie Mae, and Freddie Mac with fair values of
$4,189.1 million
,
$1,134.1 million
,
$428.6 million
, and
$384.6 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 has maturities ranging from
October 2012
through
August 2022
. Corporate bonds include investment-grade debt securities, which include a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from
October 2012
to
August 2022
.
At
September 30, 2012
, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, rate reduction and auto loan receivables with fair values of
$415.3 million
,
$116.4 million
and
$84.7 million
, respectively. At
June 30, 2012
, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, rate reduction and auto loan receivables with fair values of
$323.0 million
,
$140.0 million
, and
$85.1 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
September 30, 2012
.
At
September 30, 2012
, other securities and their fair value primarily represent AAA rated supranational bonds of
$440.9 million
, AA and AAA rated sovereign bonds of
$412.4 million
, AAA rated commercial mortgage-backed securities of
$251.0 million
, and AA rated mortgage-backed securities of
$126.8 million
that are guaranteed by Fannie Mae and Freddie Mac. At
June 30, 2012
, other securities and their fair value primarily represent AAA rated supranational bonds of
$427.7 million
, AA and AAA rated sovereign bonds of
$405.0 million
, AAA rated commercial mortgage-backed securities of
$282.3 million
, and AA rated mortgage-backed securities of
$135.3 million
that are guaranteed by Fannie Mae and Freddie Mac. 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 and Freddie Mac as to the timely payment of principal and interest.
Classification of corporate investments on the Consolidated Balance Sheets is as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
June 30,
|
|
2012
|
|
2012
|
Corporate investments:
|
|
|
|
Cash and cash equivalents
|
$
|
1,117.4
|
|
|
$
|
1,548.1
|
|
Short-term marketable securities
|
35.7
|
|
|
30.4
|
|
Long-term marketable securities
|
522.4
|
|
|
86.9
|
|
Total corporate investments
|
$
|
1,675.5
|
|
|
$
|
1,665.4
|
|
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,
|
|
2012
|
|
2012
|
Funds held for clients:
|
|
|
|
Restricted cash and cash equivalents held to satisfy client funds obligations
|
$
|
2,608.5
|
|
|
$
|
3,563.0
|
|
Restricted short-term marketable securities held to satisfy client funds obligations
|
2,888.5
|
|
|
2,954.1
|
|
Restricted long-term marketable securities held to satisfy client funds obligations
|
14,970.4
|
|
|
15,022.0
|
|
Total funds held for clients
|
$
|
20,467.4
|
|
|
$
|
21,539.1
|
|
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
$19,701.3 million
and
$20,856.2 million
as of
September 30, 2012
and
June 30, 2012
, 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
90 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 section of the Statements of Consolidated Cash Flows.
Approximately
84%
of the available-for-sale securities held a AAA or AA rating at
September 30, 2012
, as rated by Moody's, Standard & Poor's and, for Canadian securities, Dominion Bond Rating Service. All available-for-sale securities were rated as investment grade at
September 30, 2012
.
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, 2012
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses
less than
12 months
|
|
Fair market
value less than
12 months
|
|
Unrealized
losses
greater than
12 months
|
|
Fair market
value greater
than 12 months
|
|
Total gross
unrealized
losses
|
|
Total fair
market value
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
Corporate bonds
|
(0.3
|
)
|
|
45.7
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
45.7
|
|
Canadian provincial bonds
|
—
|
|
|
11.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.2
|
|
Asset-backed securities
|
(0.1
|
)
|
|
13.1
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
13.1
|
|
Municipal bonds
|
—
|
|
|
9.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.9
|
|
Canadian government agency obligations
|
(0.6
|
)
|
|
217.0
|
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
217.0
|
|
Other securities
|
(0.2
|
)
|
|
15.1
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
15.1
|
|
|
$
|
(1.2
|
)
|
|
$
|
315.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1.2
|
)
|
|
$
|
315.1
|
|
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, 2012
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses
less than
12 months
|
|
Fair market
value less than
12 months
|
|
Unrealized
losses
greater than
12 months
|
|
Fair market
value greater
than 12 months
|
|
Total gross
unrealized
losses
|
|
Total fair
market value
|
U.S. Treasury and direct obligations of U.S. government agencies
|
$
|
(0.1
|
)
|
|
$
|
43.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
43.6
|
|
Corporate bonds
|
(1.1
|
)
|
|
234.8
|
|
|
(0.4
|
)
|
|
20.2
|
|
|
(1.5
|
)
|
|
255.0
|
|
Canadian provincial bonds
|
(0.3
|
)
|
|
58.5
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
58.5
|
|
Asset-backed securities
|
—
|
|
|
13.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13.6
|
|
Municipal bonds
|
(0.1
|
)
|
|
22.8
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
22.8
|
|
Canadian government agency obligations
|
(0.6
|
)
|
|
209.4
|
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
209.4
|
|
Other securities
|
(0.1
|
)
|
|
26.3
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
26.3
|
|
|
$
|
(2.3
|
)
|
|
$
|
609.0
|
|
|
$
|
(0.4
|
)
|
|
$
|
20.2
|
|
|
$
|
(2.7
|
)
|
|
$
|
629.2
|
|
Expected maturities of available-for-sale securities at
September 30, 2012
are as follows:
|
|
|
|
|
Due in one year or less
|
$
|
2,924.2
|
|
Due after one year to two years
|
1,660.4
|
|
Due after two years to three years
|
4,088.4
|
|
Due after three years to four years
|
3,883.1
|
|
Due after four years
|
5,860.9
|
|
|
|
|
Total available-for-sale securities
|
$
|
18,417.0
|
|
Note 8. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date and is based upon the Company’s principal or most advantageous market for a specific asset or liability.
U.S. GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:
Level 1 Fair value is determined based upon quoted prices for identical assets or liabilities that are traded in active markets.
Level 2 Fair value is determined based upon inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
· quoted prices for similar assets or liabilities in active markets;
· quoted prices for identical or similar assets or liabilities in markets that are not active;
· inputs other than quoted prices that are observable for the asset or liability; or
· inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based upon the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).
Available-for-sale securities included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. Over
99%
of the Company's available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service. To determine the fair value of the Company's Level 2 investments, a variety of inputs are utilized, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment information. The Company reviews the values generated by the independent pricing service for reasonableness by comparing the valuations received from the independent pricing service to valuations from at least one other observable source. The Company has not adjusted the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 3.
The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The significant input with the lowest level priority is used to determine the applicable level in the fair value hierarchy.
The following table presents the Company's assets measured at fair value on a recurring basis at
September 30, 2012
. Included in the table are available-for-sale securities within corporate investments of
$558.1 million
and funds held for clients of
$17,858.9 million
. Refer to Note 7 for additional disclosure in relation to corporate investments and funds held for clients.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
U.S Treasury and direct obligations of
|
|
|
|
|
|
|
|
U.S. government agencies
|
$
|
—
|
|
|
$
|
6,652.9
|
|
|
$
|
—
|
|
|
$
|
6,652.9
|
|
Corporate bonds
|
—
|
|
|
7,576.4
|
|
|
—
|
|
|
7,576.4
|
|
Canadian provincial bonds
|
—
|
|
|
693.5
|
|
|
—
|
|
|
693.5
|
|
Asset-backed securities
|
—
|
|
|
616.8
|
|
|
—
|
|
|
616.8
|
|
Municipal bonds
|
—
|
|
|
555.4
|
|
|
—
|
|
|
555.4
|
|
Canadian government obligations and
|
|
|
|
|
|
|
|
|
|
|
|
Canadian government agency obligations
|
—
|
|
|
1,063.4
|
|
|
—
|
|
|
1,063.4
|
|
Other securities
|
21.8
|
|
|
1,236.8
|
|
|
—
|
|
|
1,258.6
|
|
Total available-for-sale securities
|
$
|
21.8
|
|
|
$
|
18,395.2
|
|
|
$
|
—
|
|
|
$
|
18,417.0
|
|
The following table presents the Company’s assets measured at fair value on a recurring basis at
June 30, 2012
. Included in the table are available-for-sale securities within corporate investments of
$117.3 million
and funds held for clients of
$17,976.1 million
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
U.S Treasury and direct obligations of
|
|
|
|
|
|
|
|
U.S. government agencies
|
$
|
—
|
|
|
$
|
6,674.6
|
|
|
$
|
—
|
|
|
$
|
6,674.6
|
|
Corporate bonds
|
—
|
|
|
7,368.0
|
|
|
—
|
|
|
7,368.0
|
|
Canadian provincial bonds
|
—
|
|
|
655.9
|
|
|
—
|
|
|
655.9
|
|
Asset-backed securities
|
—
|
|
|
548.4
|
|
|
—
|
|
|
548.4
|
|
Municipal bonds
|
—
|
|
|
552.9
|
|
|
—
|
|
|
552.9
|
|
Canadian government obligations and
|
|
|
|
|
|
|
|
|
|
|
|
Canadian government agency obligations
|
—
|
|
|
1,017.0
|
|
|
—
|
|
|
1,017.0
|
|
Other securities
|
20.6
|
|
|
1,256.0
|
|
|
—
|
|
|
1,276.6
|
|
Total available-for-sale securities
|
$
|
20.6
|
|
|
$
|
18,072.8
|
|
|
$
|
—
|
|
|
$
|
18,093.4
|
|
Note 9. Receivables
Accounts receivable, net, includes the Company's trade receivables, which are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts. The Company's receivables also include notes receivable for the financing of the sale of computer systems, primarily from auto, truck, motorcycle, marine, recreational vehicle and heavy equipment retailers and manufacturers. Notes receivable are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts and unearned income. The allowance for doubtful accounts is the Company's best estimate of probable credit losses related to trade receivables and notes receivable based upon the aging of the receivables, historical collection data, internal assessments of credit quality and the economic conditions in the automobile industry, as well as in the economy as a whole. The Company charges off uncollectable amounts against the reserve in the period in which it determines they are uncollectable. Unearned income on notes receivable is amortized using the effective interest method.
The Company’s receivables, whose carrying value approximates fair value, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
June 30, 2012
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
Trade receivables
|
$
|
1,430.5
|
|
|
$
|
—
|
|
|
$
|
1,355.7
|
|
|
$
|
—
|
|
Notes receivable
|
90.0
|
|
|
146.4
|
|
|
89.1
|
|
|
145.5
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts - trade receivables
|
(44.5
|
)
|
|
—
|
|
|
(40.7
|
)
|
|
—
|
|
Allowance for doubtful accounts - notes receivable
|
(5.7
|
)
|
|
(9.3
|
)
|
|
(5.4
|
)
|
|
(8.8
|
)
|
Unearned income - notes receivable
|
(6.9
|
)
|
|
(6.4
|
)
|
|
(7.0
|
)
|
|
(6.9
|
)
|
Total
|
$
|
1,463.4
|
|
|
$
|
130.7
|
|
|
$
|
1,391.7
|
|
|
$
|
129.8
|
|
The Company determines the allowance for doubtful accounts related to notes receivable based upon a specific reserve for known collection issues, as well as a non-specific reserve based upon aging, both of which are based upon history of such losses and current economic conditions. Based upon the Company's methodology, the notes receivable balances with specific and non-specific reserves and the specific and non-specific reserves associated with those balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Notes Receivable
|
|
Reserve
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
Specific Reserve
|
$
|
0.4
|
|
|
$
|
0.7
|
|
|
$
|
0.4
|
|
|
$
|
0.7
|
|
Non-specific Reserve
|
89.6
|
|
|
145.7
|
|
|
5.3
|
|
|
8.6
|
|
Total
|
$
|
90.0
|
|
|
$
|
146.4
|
|
|
$
|
5.7
|
|
|
$
|
9.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
Notes Receivable
|
|
Reserve
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
Specific Reserve
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
$
|
0.4
|
|
|
$
|
0.6
|
|
Non-specific Reserve
|
88.7
|
|
|
144.9
|
|
|
5.0
|
|
|
8.2
|
|
Total
|
$
|
89.1
|
|
|
$
|
145.5
|
|
|
$
|
5.4
|
|
|
$
|
8.8
|
|
The rollforward of the allowance for doubtful accounts related to notes receivable is as follows:
|
|
|
|
|
|
|
|
|
|
Current
|
|
Long-term
|
Balance at June 30, 2012
|
$
|
5.4
|
|
|
$
|
8.8
|
|
Incremental provision
|
0.4
|
|
|
0.5
|
|
Recoveries and other
|
—
|
|
|
0.2
|
|
Chargeoffs
|
(0.1
|
)
|
|
(0.2
|
)
|
Balance at September 30, 2012
|
$
|
5.7
|
|
|
$
|
9.3
|
|
The allowance for doubtful accounts as a percentage of notes receivable was approximately
6%
as of
September 30, 2012
and
6%
as of
June 30, 2012
.
Notes receivable aged over
30
days past due are considered delinquent. Notes receivable aged over
60
days past due and notes receivable with known collection issues are placed on non-accrual status. Interest revenue is not recognized on notes receivable while on non-accrual status. Cash payments received on non-accrual receivables are applied towards the principal. When notes receivable on non-accrual status are again less than
60
days past due, recognition of interest revenue for notes receivable is resumed. At
September 30, 2012
, the Company had
$1.2 million
in notes receivable on non-accrual status, including
$0.2 million
of notes receivable aged over
60
days past due. At
June 30, 2012
, the Company had
$0.4 million
in notes receivable on non-accrual status, including
$0.1 million
of notes receivable aged over
60
days past due.
On an ongoing basis, the Company evaluates the credit quality of its financing receivables, utilizing aging of receivables, collection experience and charge-offs. In addition, the Company evaluates economic conditions in the auto industry and
specific dealership matters, such as bankruptcy. As events related to a specific client dictate, the credit quality of a client is reevaluated.
The aging of the notes receivable past due at
September 30, 2012
is as follows:
|
|
|
|
|
|
|
|
|
|
Over 30 days to 60 days
|
|
Over 60 days
|
Notes Receivable
|
$
|
2.1
|
|
|
$
|
0.2
|
|
At
September 30, 2012
, approximately
99%
of notes receivable are current.
The aging of the notes receivable past due at
June 30, 2012
is as follows:
|
|
|
|
|
|
|
|
|
|
Over 30 days to 60 days
|
|
Over 60 days
|
Notes Receivable
|
$
|
0.7
|
|
|
$
|
0.1
|
|
At
June 30, 2012
, approximately
100%
of notes receivable are current.
Note 10. Assets held for Sale
In fiscal
2012
, the Company reclassified assets related to
two
buildings as assets held for sale that were previously reported in property, plant and equipment, net on the Consolidated Balance Sheets.
Note 11. Goodwill and Intangible Assets, net
Changes in goodwill for the
three months ended
September 30, 2012
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
Services
|
|
PEO
Services
|
|
Dealer
Services
|
|
Total
|
Balance at June 30, 2012
|
$
|
1,887.6
|
|
|
$
|
4.8
|
|
|
$
|
1,169.6
|
|
|
$
|
3,062.0
|
|
Additions and other adjustments, net
|
(0.3
|
)
|
|
—
|
|
|
0.8
|
|
|
0.5
|
|
Currency translation adjustments
|
14.2
|
|
|
—
|
|
|
12.1
|
|
|
26.3
|
|
Balance at September 30, 2012
|
$
|
1,901.5
|
|
|
$
|
4.8
|
|
|
$
|
1,182.5
|
|
|
$
|
3,088.8
|
|
Components of intangible assets, net, are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
June 30,
|
|
2012
|
|
2012
|
Intangible assets:
|
|
|
|
Software and software licenses
|
$
|
1,446.0
|
|
|
$
|
1,410.9
|
|
Customer contracts and lists
|
841.8
|
|
|
832.7
|
|
Other intangibles
|
241.7
|
|
|
241.6
|
|
|
2,529.5
|
|
|
2,485.2
|
|
Less accumulated amortization:
|
|
|
|
|
|
Software and software licenses
|
(1,173.9
|
)
|
|
(1,145.8
|
)
|
Customer contracts and lists
|
(496.6
|
)
|
|
(479.1
|
)
|
Other intangibles
|
(175.2
|
)
|
|
(172.0
|
)
|
|
(1,845.7
|
)
|
|
(1,796.9
|
)
|
Intangible assets, net
|
$
|
683.8
|
|
|
$
|
688.3
|
|
Other intangibles consist primarily of purchased rights, covenants, patents 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
7 years
(
4 years
for software and software licenses,
10 years
for customer contracts and lists, and
7 years
for other intangibles). Amortization of intangible assets was
$42.0 million
and
$42.3 million
for the three months ended
September 30, 2012
and
2011
, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
|
|
|
|
|
|
Amount
|
Nine months ending June 30, 2013
|
$
|
121.8
|
|
Twelve months ending June 30, 2014
|
$
|
136.0
|
|
Twelve months ending June 30, 2015
|
$
|
105.1
|
|
Twelve months ending June 30, 2016
|
$
|
71.8
|
|
Twelve months ending June 30, 2017
|
$
|
60.3
|
|
Twelve months ending June 30, 2018
|
$
|
36.6
|
|
Note 12. Short-term Financing
The Company has a
$2.0 billion
,
364
-day credit agreement with a group of lenders that matures in
June 2013
. In addition, the Company has a four-year
$3.25 billion
credit facility maturing in
June 2015
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 an existing
$1.5 billion
five
-year credit facility that matures in
June 2017
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 federal funds effective 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 agreements. 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
September 30, 2012
under the credit agreements.
The Company’s U.S. short-term funding requirements related to client funds are sometimes obtained through a short-term commercial paper program, which provides for the issuance of up to
$6.75 billion
in aggregate maturity value of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. The Company’s commercial paper program is rated A-1+ by Standard and 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
September 30, 2012
and
June 30, 2012
, the Company had
no
commercial paper outstanding. For the
three months ended
September 30, 2012
and
2011
, the Company’s average borrowings were
$3.2 billion
and
$3.0 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 months ended
September 30, 2012
approximated
two days
.
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, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements are collateralized principally by government and government agency securities. These agreements generally have terms ranging from
overnight to up to five business days
. The Company has
$3.0 billion
available to it on a committed basis under these reverse repurchase agreements. At
September 30, 2012
, the Company had
$442.7 million
of obligations outstanding related to reverse repurchase agreements. All outstanding reverse repurchase obligations matured by
October 3, 2012
and the outstanding obligations were repaid. At
June 30, 2012
, there were
no
outstanding obligations under reverse repurchase agreements. For the three months ended
September 30, 2012
and
2011
, the Company had average outstanding balances under reverse repurchase agreements of
$534.5 million
and
$496.8 million
, respectively, at weighted average interest rates of
0.7%
and
0.5%
, respectively.
Note 13. Employee Benefit Plans
A. Stock Plans.
The Company recognizes stock-based compensation expense in net earnings based on the fair value of the award on the date of grant. Stock-based compensation consists of the following:
|
|
•
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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. Options granted prior to July 1, 2008 generally vest ratably over
five years
and have a term of
10 years
. Options granted after July 1, 2008 generally vest ratably over
four years
and have a term of
10 years
. Compensation expense for
|
stock options is recognized over the requisite service period for each separately vesting portion of the stock option award.
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•
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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.
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◦
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Time-Based Restricted Stock.
The Company has issued time-based restricted stock to certain employees which are subject to vesting periods of up to five years from the date of grant. These shares are restricted as to transfer during the vesting period, and are forfeited if the grantee ceases to be employed by the Company prior to vesting or in certain other circumstances. The Company records stock compensation expense relating to the issuance of restricted stock based on market prices on the date of grant on a straight-line basis over the period in which the transfer restrictions exist.
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◦
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Performance-Based Restricted Stock.
The performance-based restricted stock program has a one-year performance period, and a subsequent one-year service period. Under this program, the Company communicates "target awards" to certain key employees at the beginning of the performance period and, as such, dividends are not paid in respect of the "target awards" during the performance period. After the performance period, if the performance targets are achieved, associates are eligible to receive dividends on shares awarded under the program. The performance target is based on earnings per share growth over the performance period, with possible payouts at the end of the performance period ranging from
0%
to
150%
of the "target awards." Stock-based compensation expense is measured based upon the fair value of the award on the grant date. Compensation expense is recognized on a straight-line basis over the vesting period of approximately 24 months, based upon the probability that the performance target will be met.
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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
3.3 million
shares in the
three months ended
September 30, 2012
as compared to
5.3 million
shares repurchased in the
three months ended
September 30, 2011
. 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.
Stock-based compensation expense of
$17.6 million
and
$18.5 million
was recognized in earnings for the
three months ended
September 30, 2012
and
2011
, respectively, as well as related tax benefits of
$6.5 million
and
$6.9 million
, respectively.
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|
|
|
|
|
|
|
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Three Months Ended
|
|
September 30,
|
|
2012
|
|
2011
|
Operating expenses
|
$
|
2.9
|
|
|
$
|
3.1
|
|
Selling, general and administrative expenses
|
11.8
|
|
|
12.6
|
|
System development and programming costs
|
2.9
|
|
|
2.8
|
|
Total pretax stock-based compensation expense
|
$
|
17.6
|
|
|
$
|
18.5
|
|
As of
September 30, 2012
, the total remaining unrecognized compensation cost related to non-vested stock options and restricted stock awards amounted to
$7.0 million
and
$116.0 million
, respectively, which will be amortized over the weighted-average remaining requisite service periods of
1.7 years
and
1.8 years
, respectively.
During the
three months ended
September 30, 2012
, the following activity occurred under the Company’s existing plans:
Stock Options:
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|
|
|
|
|
|
|
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Number
of Options
(in thousands)
|
|
Weighted
Average Price
(in dollars)
|
Options outstanding at July 1, 2012
|
16,187
|
|
|
$
|
41
|
|
Options granted
|
33
|
|
|
$
|
58
|
|
Options exercised
|
(1,831
|
)
|
|
$
|
37
|
|
Options canceled
|
(50
|
)
|
|
$
|
40
|
|
Options outstanding at September 30, 2012
|
14,339
|
|
|
$
|
41
|
|
Performance-Based Restricted Stock:
|
|
|
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Number of Shares
(in thousands)
|
Restricted shares outstanding at July 1, 2012
|
1,474
|
|
Restricted shares granted
|
543
|
|
Restricted shares vested
|
—
|
|
Restricted shares forfeited
|
(114
|
)
|
Restricted shares outstanding at September 30, 2012
|
1,903
|
|
Time-Based Restricted Stock:
|
|
|
|
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Number of Shares
(in thousands)
|
Restricted shares outstanding at July 1, 2012
|
358
|
|
Restricted shares granted
|
1,134
|
|
Restricted shares vested
|
(37
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)
|
Restricted shares forfeited
|
(1
|
)
|
Restricted shares outstanding at September 30, 2012
|
1,454
|
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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:
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Three Months Ended
|
|
September 30,
|
|
2012
|
|
2011
|
Risk-free interest rate
|
0.8
|
%
|
|
1.0
|
%
|
Dividend yield
|
2.7
|
%
|
|
3.1
|
%
|
Weighted average volatility factor
|
24.4
|
%
|
|
24.9
|
%
|
Weighted average expected life (in years)
|
5.3
|
|
|
5.2
|
|
Weighted average fair value (in dollars)
|
$
|
8.90
|
|
|
$
|
6.99
|
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B. Pension Plans
The components of net pension expense were as follows:
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Three Months Ended
|
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September 30,
|
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2012
|
|
2011
|
Service cost – benefits earned during the period
|
$
|
16.8
|
|
|
$
|
14.3
|
|
Interest cost on projected benefits
|
13.8
|
|
|
15.5
|
|
Expected return on plan assets
|
(27.4
|
)
|
|
(24.4
|
)
|
Net amortization and deferral
|
7.7
|
|
|
3.8
|
|
Net pension expense
|
$
|
10.9
|
|
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$
|
9.2
|
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During the
three months ended
September 30, 2012
, the Company contributed
$127.3 million
to the pension plans and expects to contribute approximately
$7.0 million
during the remainder of the fiscal year ended
June 30, 2013
.
Note 14. Income Taxes
The effective tax rate for the
three months ended
September 30, 2012
and
2011
was
35.0%
and
34.1%
, respectively. The
increase
in the effective tax rate is due to the favorable resolution of certain tax matters and the expiration of certain statutes of limitation during the three month period ended
September 30, 2011
.
.
Note 15. Commitments and Contingencies
On July 18, 2011, athenahealth, Inc. filed a complaint against ADP AdvancedMD, Inc. (“ADP AdvancedMD”), a subsidiary of the Company. The complaint alleges that ADP AdvancedMD’s activities in providing medical practice management and billing and revenue management software and associated services to physicians and medical practice managers infringe two patents owned by athenahealth, Inc. The complaint seeks monetary damages, injunctive relief, and costs. The Company has responded to the complaint, believes that it has meritorious defenses to this claim, and is continuing to vigorously defend itself against the allegations.
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 and litigation 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.
The Company has obligations under various facilities and equipment leases and software license agreements that were disclosed in its Annual Report on Form 10-K for the year ended
June 30, 2012
.
Note 16. Foreign Currency Risk Management Programs
The Company transacts business in various foreign jurisdictions and is therefore exposed to market risk from changes in foreign currency exchange rates that could impact its consolidated results of operations, financial position or cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments. The Company does not use derivative financial instruments for trading purposes. The Company had
no
derivative financial instruments outstanding at
September 30, 2012
or
June 30, 2012
.
Note 17. Interim Financial Data by Segment
Based upon similar economic characteristics and operational characteristics, the Company’s strategic business units have been aggregated into the following three reportable segments: Employer Services, PEO Services, and Dealer 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, such as customer financing transactions, and certain expenses that have not been charged to the reportable segments, such as stock-based compensation expense. 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. The prior year reportable segments’ revenues and earnings from continuing operations before income taxes have been adjusted to reflect updated fiscal
2013
budgeted foreign exchange rates. In addition, 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%
. The reportable segments’ results also include an internal cost of capital charge related to the funding of acquisitions and other investments. All of these adjustments/charges are reconciling items to the Company’s reportable segments’ revenues and/or earnings from continuing operations before income taxes and result in the elimination of these adjustments/charges in consolidation. Reportable segments' assets from continuing operations include funds held for clients, but exclude corporate cash, corporate marketable securities, and goodwill.
Segment Results:
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Revenues
|
|
Three Months Ended
|
|
September 30,
|
|
2012
|
|
2011
|
Employer Services
|
$
|
1,819.0
|
|
|
$
|
1,708.9
|
|
PEO Services
|
451.9
|
|
|
400.5
|
|
Dealer Services
|
439.8
|
|
|
402.6
|
|
Other
|
0.7
|
|
|
2.8
|
|
Reconciling items:
|
|
|
|
|
|
Foreign exchange
|
0.2
|
|
|
44.8
|
|
Client fund interest
|
(74.1
|
)
|
|
(48.7
|
)
|
Total
|
$
|
2,637.5
|
|
|
$
|
2,510.9
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Continuing Operations before Income Taxes
|
|
Three Months Ended
|
|
September 30,
|
|
2012
|
|
2011
|
Employer Services
|
$
|
421.8
|
|
|
$
|
407.2
|
|
PEO Services
|
46.2
|
|
|
36.7
|
|
Dealer Services
|
76.0
|
|
|
63.4
|
|
Other
|
(34.0
|
)
|
|
(30.9
|
)
|
Reconciling items:
|
|
|
|
|
|
Foreign exchange
|
1.2
|
|
|
(0.7
|
)
|
Client fund interest
|
(74.1
|
)
|
|
(48.7
|
)
|
Cost of capital charge
|
28.5
|
|
|
28.7
|
|
Total
|
$
|
465.6
|
|
|
$
|
455.7
|
|
During the
three months ended
September 30, 2012
and
2011
, Dealer Services earned
11.3%
and
12.0%
, respectively, of its segment revenues from one client. The Company did not have any customers that individually accounted for more than 10% of the Company's consolidated revenue from continuing operations.
Note 18. Subsequent Events
With the exception of the repayment of reverse repurchase obligations described in Note 12, there are no further subsequent events for disclosure.