Notes to Consolidated Financial Statements
(Tabular dollars in millions, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Preparation.
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”). Intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, costs, expenses, and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates.
B. Description of Business.
The Company is a provider of technology-based outsourcing solutions to employers and vehicle retailers and manufacturers. The Company classifies its operations into the following reportable segments: Employer Services; Professional Employer Organization (“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 charges and expenses that have not been allocated to the reportable segments, such as stock-based compensation expense, the goodwill impairment charge for the year ended June 30, 2013 ("fiscal 2013"), and direct and incremental costs incurred to consummate the planned separation of the Dealer Services business.
C. Revenue Recognition.
Revenues are primarily attributable to fees for providing services (
e.g.,
Employer Services' payroll processing fees) as well as investment income on payroll funds, payroll tax filing funds and other Employer Services' client-related funds. The Company enters into agreements for a fixed fee per transaction (
e.g.,
number of payees or number of payrolls processed). Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties.
PEO revenues are reported net of direct pass-through costs, which are costs billed and incurred for PEO Services worksite employees, primarily consisting of payroll wages and payroll taxes. Benefits, workers' compensation, and state unemployment tax fees for worksite employees are included in PEO revenues and the associated costs are included in operating expenses.
Interest income on collected but not yet remitted funds held for clients is recognized in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.
The Company also recognizes revenues associated with the sale of software systems and associated software licenses (
e.g.
, Dealer Services' dealer management systems). For a majority of our software sales arrangements, which provide hardware, software licenses, installation, and post-contract customer support, revenues are recognized ratably over the software license term, as vendor-specific objective evidence of the fair values of the individual elements in the sales arrangement does not exist.
The Company assesses the collectability of revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer's payment history.
D. Cash and Cash Equivalents.
Investment securities with a maturity of ninety days or less at the time of purchase are considered cash equivalents. The fair value of our cash and cash equivalents approximates carrying value.
E. Corporate Investments and Funds Held for Clients.
All of the Company's marketable securities are considered to be “available-for-sale” and, accordingly, are carried on the Consolidated Balance Sheets at fair value. Unrealized gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of accumulated other comprehensive income on the Consolidated Balance Sheets until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis and are included in other income, net on the Statements of Consolidated Earnings.
If the fair value of an available-for-sale debt security is below its amortized cost, the Company assesses whether it intends to
sell the security or if it is more likely than not the Company will be required to sell the security before recovery. If either of those two conditions are met, the Company would recognize a charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value. If the Company does not intend to sell a security or it is not more likely than not that it will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in accumulated other comprehensive income.
Premiums and discounts are amortized or accreted over the life of the related available-for-sale security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned.
F. 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.
G. Long-term Receivables.
Long-term receivables primarily relate to notes receivable from the sale of computer systems to auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment retailers and manufacturers. Unearned income from finance receivables represents the excess of gross receivables over the sales price of the computer systems financed. Unearned income is amortized using the effective-interest method to maintain a constant rate of return over the term of each contract.
Notes receivable aged over
30
days past due are considered delinquent and notes receivable aged over
60
days past due 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.
The allowance for doubtful accounts on long-term receivables is the Company's best estimate of the amount of probable credit losses related to the Company's existing note receivables.
H. Property, Plant and Equipment.
Property, plant and equipment is stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of assets are primarily as follows:
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Data processing equipment
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2 to 5 years
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Buildings
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20 to 40 years
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Furniture and fixtures
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3 to 7 years
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I. Goodwill.
Goodwill is not amortized, but is instead tested for impairment annually and whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company performs this impairment test by first comparing the fair value of each reporting units to its carrying amount. If the carrying value for a reporting unit exceeds its fair value, the Company would then compare the implied fair value of goodwill to the carrying amount in order to determine the amount of the impairment, if any. The Company determines the estimated fair value of its reporting units using an equal weighted blended approach, which combines the income approach, which is the present value of expected cash flows, discounted at a risk-adjusted weighted-average cost of capital; and the market approach, which is based on using market multiples of companies in similar lines of business. Significant assumptions used in determining the fair value of our reporting units include projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost of capital, the determination of appropriate market comparison companies, and terminal growth rates. The Company had
$3,113.8 million
of goodwill as of
June 30, 2014
. Based on the fair value analysis completed in the fourth quarter of
2014
, the Company concluded that goodwill fair value exceeded the carrying value for all reporting units. In fiscal 2013, the Company recognized a
$42.7 million
impairment on its AdvancedMD reporting unit.
J. Impairment of Long-Lived Assets.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
K. Foreign Currency Translation.
The net assets of the Company's foreign subsidiaries are translated into U.S. dollars based on exchange rates in effect for each period, and revenues and expenses are translated at average exchange rates in the periods. Gains or losses from balance sheet translation are included in accumulated other comprehensive income on the Consolidated Balance Sheets. Currency transaction gains or losses, which are included in the results of operations, are immaterial for all periods presented.
L. Foreign Currency Risk Management Programs and Derivative Financial Instruments.
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.
Derivative financial instruments are measured at fair value and are recognized as assets or liabilities on the Consolidated Balance Sheets with changes in the fair value of the derivatives recognized in either net earnings from continuing operations or accumulated other comprehensive income, depending on the timing and designated purpose of the derivative.
There were no derivative financial instruments outstanding at
June 30, 2014
or
June 30, 2013
.
M. Earnings per Share (“EPS”).
The calculations of basic and diluted EPS are as follows:
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Years ended June 30,
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Basic
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Effect of Employee Stock Option Shares
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Effect of
Employee
Restricted
Stock
Shares
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Diluted
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2014
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Net earnings from continuing operations
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$
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1,502.6
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$
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1,502.6
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Weighted average shares (in millions)
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478.9
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|
2.7
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|
|
1.5
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|
|
483.1
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EPS from continuing operations
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$
|
3.14
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$
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3.11
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2013
|
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Net earnings from continuing operations
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$
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1,358.1
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$
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1,358.1
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Weighted average shares (in millions)
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482.7
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|
3.3
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|
1.1
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|
487.1
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EPS from continuing operations
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$
|
2.81
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$
|
2.79
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2012
|
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Net earnings from continuing operations
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$
|
1,375.2
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|
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|
|
$
|
1,375.2
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Weighted average shares (in millions)
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487.3
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|
3.8
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|
|
1.1
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|
492.2
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EPS from continuing operations
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$
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2.82
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$
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2.79
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Options to purchase
1.5 million
,
1.2 million
, and
0.9 million
shares of common stock for the year ended
June 30, 2014
("fiscal
2014
"), fiscal
2013
, and the year ended June 30,
2012
("fiscal
2012
"), 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.
N. Stock-Based Compensation.
The Company recognizes stock-based compensation expense in net earnings based on the fair value of the award on the date of the grant. The Company determines the fair value of stock options issued using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing 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 option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of a 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.
O. Internal Use Software.
Expenditures for major software purchases and software developed or obtained for internal use are capitalized and amortized over a three to five-year period on a straight-line basis. The Company's policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are expensed as incurred. The Company also expenses internal costs related to minor upgrades and enhancements, as it is impractical to separate these costs from normal maintenance activities.
P. Computer Software to be Sold, Leased, or Otherwise Marketed.
The Company capitalizes certain costs of computer software to be sold, leased, or otherwise marketed. The Company's policy provides for the capitalization of all software production costs upon reaching technological feasibility for a specific product. Technological feasibility is attained when software products have a completed working model whose consistency with the overall product design has been confirmed by testing. Costs incurred prior to the establishment of technological feasibility are expensed as incurred. The establishment of technological feasibility requires judgment by management and in many instances is only attained a short time prior to the general release of the software. Upon the general release of the software product to customers, capitalization ceases and such costs are amortized over a three-year period on a straight-line basis. Maintenance-related costs are expensed as incurred.
Q. Income Taxes.
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. The Company is subject to the continuous examination of our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities.
There is a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. Specifically, the likelihood of an entity's tax benefits being sustained must be “more likely than not,” assuming that these positions will be examined by taxing authorities with full knowledge of all relevant information prior to recording the related tax benefit in the financial statements. If a tax position drops below the “more likely than not” standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. As of
June 30, 2014
and
2013
, the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were
$56.7 million
and
$70.7 million
, respectively.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, favorable settlements related to various jurisdictions and tax periods could increase earnings by up to
$10 million
. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability, and deferred taxes in the period in which the facts that give rise to a revision become known.
R. Workers' Compensation Costs.
The Company employs a third-party actuary to assist in determining the estimated claim liability related to workers' compensation and employer's liability coverage for PEO Services worksite employees. In estimating ultimate loss rates, we utilize historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which are primarily based upon the worksite employee's job responsibilities, their location, the historical frequency and severity of workers' compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers' compensation claims cost estimates. The Company has secured specific per occurrence insurance that caps the exposure for each claim at
$1 million
per occurrence, and has also secured aggregate stop loss insurance that caps aggregate losses at a certain level in each policy year. Additionally, for fiscal 2013 and 2014, the Company entered into reinsurance arrangements to cover substantially all losses incurred by the Company for the fiscal 2013 and 2014 policy years up to the
$1 million
per occurrence related to workers' compensation and employer's liability deductible reimbursement insurance protection for PEO services worksite employees.
S. Recently Issued Accounting Pronouncements.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 requires an entity to recognize revenue depicting the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will also result in enhanced revenue related disclosures. ASU 2014-09 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016. The Company has not yet determined the impact of ASU 2014-09 on its consolidated results of operations, financial condition, or cash flows.
In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. ASU 2014-08 also expands the disclosure requirements for discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014. The impact of ASU 2014-08 is dependent upon the nature of dispositions, if any, after adoption.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 requires netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax position. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective adoption is permitted. The adoption of ASU 2013-11 will not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
In July 2013, the Company adopted ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires entities to disclose the amount of income (loss) reclassified out of accumulated other comprehensive income to each respective line item on the income statement. The guidance allows companies to elect whether to disclose the reclassification either on the face of the income statement or in the notes to the financial statements, including cross-referencing other disclosures which provide additional details about these amounts. The Company has elected to disclose the reclassification in the notes to the financial statements with cross-references to other disclosures which provide additional details about the amounts. The adoption of ASU 2013-02 did not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
NOTE 2. SEPARATION OF DEALER SERVICES
On
April 10, 2014
, the Company announced that its Board of Directors approved a plan to spin-off the Company’s Dealer Services business into an independently publicly-traded company through a tax-free spin-off of 100% of Dealer Services to ADP shareholders. The Company has requested an opinion from Paul, Weiss, Rifkind, Wharton & Garrison LLP, its counsel, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the request, the distribution will qualify as a transaction that is tax-free under Section 355 and other related provisions of the Internal Revenue Code. The distribution is conditioned upon, among other things, the receipt by the Company of such a favorable opinion of counsel confirming the distribution’s tax-free status. The separation is subject to other conditions, including necessary regulatory approvals. ADP has also requested rulings from the IRS and other jurisdictions with respect to certain discrete and significant issues arising in connection with the transactions being effected in connection with the separation and distribution.
On
June 10, 2014
, Dealer Services (under the name of “Dealer Services Holdings LLC”) filed a registration statement on Form 10 with the Securities and Exchange Commission. Additionally, Dealer Services Holdings LLC filed an amendment to its Form 10 on July 25, 2014. The financial presentation of Dealer Services in the Form 10 differs from the financial presentation of the Dealer Services segment in ADP’s financial statements due to adjustments made in the Form 10 to reflect the additional corporate expenses and other operating costs of Dealer Services as if it were a stand-alone company.
Upon completion of the spin-off, ADP shareholders will have separate ownership interests in ADP and Dealer Services. ADP and Dealer Services will be two distinct businesses with separate ownership and management. To facilitate Dealer Services’ separation from ADP, ADP will provide certain services to Dealer Services during a transition period following completion of the spin-off. ADP expects to incur approximately
$40.0 million
to
$50.0 million
of incremental separation costs during the fiscal year ended June 30, 2015 ("fiscal 2015") related to the spin-off. Incremental costs associated with the spin-off of
$14.9 million
for fiscal
2014
are included in separation costs on the Statements of Consolidated Earnings and are principally related to professional services.
NOTE 3. OTHER INCOME, NET
Other income, net consists of the following:
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Years ended June 30,
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|
2014
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|
2013
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2012
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Interest income on corporate funds
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$
|
(56.2
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)
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$
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(64.5
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)
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$
|
(85.2
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)
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Realized gains on available-for-sale securities
|
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(20.4
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)
|
|
(32.1
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)
|
|
(32.1
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)
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Realized losses on available-for-sale securities
|
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3.9
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|
|
3.5
|
|
|
7.7
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Impairment losses on available-for-sale securities
|
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—
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|
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—
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|
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5.8
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Impairment losses on assets held for sale
|
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—
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|
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—
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|
|
2.2
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Gains on sales of buildings
|
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—
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|
(2.2
|
)
|
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—
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Gain on sale of assets
|
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—
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|
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—
|
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|
(66.0
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)
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Other, net
|
|
(0.2
|
)
|
|
(0.9
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)
|
|
(3.2
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)
|
Other income, net
|
|
$
|
(72.9
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)
|
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$
|
(96.2
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)
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$
|
(170.8
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)
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During fiscal 2013, the Company completed the sale of
two
buildings that were previously classified as assets held for sale on the Consolidated Balance Sheets and, as a result, recorded gains of
$2.2 million
in other income, net, on the Statements of Consolidated Earnings.
During fiscal 2012, the Company sold assets related to rights and obligations to resell a third-party expense management platform, and, as a result, recorded a gain of
$66.0 million
in other income, net, on the Statements of Consolidated Earnings.
During fiscal 2012, the Company completed the sale of
two
buildings for their combined carrying value of
$6.9 million
, net of selling costs. The Company had previously classified these assets as assets held for sale on the Consolidated Balance Sheets and recognized impairment losses within other income, net on the Statements of Consolidated Earnings of
$2.2 million
in fiscal 2012.
During fiscal 2012, the Company concluded that it had the intent to sell certain available-for-sale securities with unrealized losses of
$5.8 million
. As such, the Company recorded an impairment charge of
$5.8 million
in other income, net, on the Statements of Consolidated Earnings.
NOTE 4. 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 acquired
two
businesses during fiscal
2014
for approximately
$28.5 million
, net of cash acquired. As of
June 30, 2014
, the Company had not yet finalized the purchase price allocations for these
two
acquisitions.
The Company acquired
two
businesses during fiscal
2013
for approximately
$40.4 million
, net of cash acquired. The Company finalized the purchase price allocation for these
two
acquisitions during fiscal
2014
and adjusted the preliminary values allocated to certain assets and liabilities in order to reflect final information received.
The Company acquired
seven
businesses in fiscal
2012
for an aggregate purchase price of approximately
$292.3 million
, net of cash acquired. These acquisitions resulted in approximately
$182.6 million
of goodwill. Intangible assets acquired, which total approximately
$90.0 million
for these
seven
acquisitions, included customer contracts and lists, software, and trademarks that are being amortized over a weighted average life of approximately
11 years
.
The Company reviews estimates of the fair value of contingent consideration ("earn-out") expected to be paid in the event that certain performance metrics are achieved over an earn-out period and makes adjustments when facts and circumstances warrant. The Company made contingent payments relating to previously consummated acquisitions of
$3.5 million
,
$14.5 million
, and
$2.8 million
during fiscal
2014
,
2013
, and
2012
.
The acquisitions discussed above for fiscal
2014
,
2013
, and
2012
were not material, either individually or in the aggregate, to the Company's operations, financial position, or cash flows.
NOTE 5. DIVESTITURES
On
February 28, 2014
, the Company completed the sale of its Occupational Health and Safety services business ("OHS") for a pre-tax gain of
$15.6 million
, less costs to sell, and recorded such gain within earnings from discontinued operations on the Statements of Consolidated Earnings. In connection with the disposal of OHS, the Company classified the results of this business as discontinued operations for all periods presented. OHS was previously reported in the Employer Services segment.
On
December 17, 2012
, the Company completed the sale of its Taxware Enterprise Service business ("Taxware") for a pre-tax gain of
$58.8 million
, less costs to sell, and recorded such gain within earnings from discontinued operations on the Statements of Consolidated Earnings. In connection with the disposal of Taxware, the Company has classified the results of this business as discontinued operations for all periods presented. Taxware was previously reported in the Employer Services segment.
Operating results for discontinued operations were as follows:
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|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
2012
|
Revenues
|
|
$
|
13.0
|
|
|
$
|
46.3
|
|
|
$
|
69.8
|
|
|
|
|
|
|
|
|
Earnings from discontinued operations before income taxes
|
|
3.9
|
|
|
16.2
|
|
|
20.4
|
|
Provision for income taxes
|
|
1.1
|
|
|
5.2
|
|
|
7.1
|
|
Net earnings from discontinued operations before gain on disposal of
discontinued operations
|
|
2.8
|
|
|
11.0
|
|
|
13.3
|
|
|
|
|
|
|
|
|
Gain on disposal of discontinued operations, less costs to sell
|
|
15.6
|
|
|
58.8
|
|
|
—
|
|
Provision for income taxes
|
|
5.1
|
|
|
22.1
|
|
|
—
|
|
Net gain on disposal of discontinued operations
|
|
10.5
|
|
|
36.7
|
|
|
—
|
|
|
|
|
|
|
|
|
Net earnings from discontinued operations
|
|
$
|
13.3
|
|
|
$
|
47.7
|
|
|
$
|
13.3
|
|
There were no assets or liabilities of discontinued operations as of
June 30, 2014
. The following are the major classes of assets and liabilities related to the discontinued operations as of
June 30, 2013
.
|
|
|
|
|
|
June 30, 2013
|
Assets:
|
|
Accounts receivable, net
|
$
|
3.0
|
|
Goodwill
|
13.4
|
|
Other assets
|
0.3
|
|
|
|
Total assets
|
$
|
16.7
|
|
|
|
Liabilities:
|
|
Accounts payable
|
$
|
0.8
|
|
Accrued expenses and other current liabilities
|
0.3
|
|
Accrued payroll and payroll related expenses
|
0.8
|
|
Deferred revenues
|
1.8
|
|
Income taxes payable
|
0.5
|
|
|
|
Total liabilities
|
$
|
4.2
|
|
NOTE 6. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS
Corporate investments and funds held for clients at
June 30, 2014
and
2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value (A)
|
Type of issue:
|
|
|
|
|
|
|
|
Money market securities and other cash equivalents
|
$
|
3,171.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,171.4
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
8,720.1
|
|
|
171.1
|
|
|
(15.0
|
)
|
|
8,876.2
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
6,051.4
|
|
|
107.3
|
|
|
(11.7
|
)
|
|
6,147.0
|
|
Asset-backed securities
|
1,822.6
|
|
|
6.1
|
|
|
(6.9
|
)
|
|
1,821.8
|
|
Canadian government obligations and
Canadian government agency obligations
|
1,031.4
|
|
|
7.6
|
|
|
(0.8
|
)
|
|
1,038.2
|
|
Canadian provincial bonds
|
747.7
|
|
|
25.3
|
|
|
(2.5
|
)
|
|
770.5
|
|
Municipal bonds
|
543.3
|
|
|
19.4
|
|
|
(0.5
|
)
|
|
562.2
|
|
Other securities
|
915.6
|
|
|
25.7
|
|
|
(0.7
|
)
|
|
940.6
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
19,832.1
|
|
|
362.5
|
|
|
(38.1
|
)
|
|
20,156.5
|
|
|
|
|
|
|
|
|
|
Total corporate investments and funds held for clients
|
$
|
23,003.5
|
|
|
$
|
362.5
|
|
|
$
|
(38.1
|
)
|
|
$
|
23,327.9
|
|
(A) Included within available-for-sale securities are corporate investments with fair values of
$2,086.3 million
and funds held for clients with fair values of
$18,070.2 million
. All available-for-sale securities were included in Level 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value (B)
|
Type of issue:
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities and other cash equivalents
|
$
|
5,431.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,431.2
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
7,868.3
|
|
|
166.2
|
|
|
(56.7
|
)
|
|
7,977.8
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
5,983.7
|
|
|
152.6
|
|
|
(37.4
|
)
|
|
6,098.9
|
|
Asset-backed securities
|
1,374.1
|
|
|
5.3
|
|
|
(19.7
|
)
|
|
1,359.7
|
|
Canadian government obligations and
Canadian government agency obligations
|
998.2
|
|
|
10.7
|
|
|
(4.5
|
)
|
|
1,004.4
|
|
Canadian provincial bonds
|
695.7
|
|
|
20.7
|
|
|
(5.6
|
)
|
|
710.8
|
|
Municipal bonds
|
536.9
|
|
|
16.7
|
|
|
(4.4
|
)
|
|
549.2
|
|
Other securities
|
1,094.4
|
|
|
46.3
|
|
|
(2.8
|
)
|
|
1,137.9
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
18,551.3
|
|
|
418.5
|
|
|
(131.1
|
)
|
|
18,838.7
|
|
|
|
|
|
|
|
|
|
Total corporate investments and funds held for clients
|
$
|
23,982.5
|
|
|
$
|
418.5
|
|
|
$
|
(131.1
|
)
|
|
$
|
24,269.9
|
|
(B) Included within available-for-sale securities are corporate investments with fair values of
$342.0 million
and funds held for clients with fair values of
$18,496.7 million
. At
June 30, 2013
Level 1 securities included
$9.5 million
of corporate investments classified within "Other securities," all remaining available-for-sale securities were included in Level 2.
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". The Company did not transfer any assets
between Levels during the years ended
June 30, 2014
or
2013
. In addition, the Company did not adjust the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 1 or Level 3 as of June 30, 2014.
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, 2014
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Securities in unrealized loss position less than 12 months
|
|
Securities in unrealized loss position greater than 12 months
|
|
Total
|
|
Unrealized
losses
|
|
Fair market
value
|
|
Unrealized
losses
|
|
Fair market
value
|
|
Gross
unrealized
losses
|
|
Fair
market value
|
Corporate bonds
|
$
|
(0.9
|
)
|
|
$
|
313.8
|
|
|
$
|
(14.1
|
)
|
|
$
|
1,026.0
|
|
|
$
|
(15.0
|
)
|
|
$
|
1,339.8
|
|
U.S. Treasury and direct obligations of
U.S. government agencies
|
(0.3
|
)
|
|
84.6
|
|
|
(11.4
|
)
|
|
944.8
|
|
|
(11.7
|
)
|
|
1,029.4
|
|
Asset-backed securities
|
(0.7
|
)
|
|
325.4
|
|
|
(6.2
|
)
|
|
555.5
|
|
|
(6.9
|
)
|
|
880.9
|
|
Canadian government obligations and
Canadian government agency obligations
|
(0.8
|
)
|
|
127.2
|
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
127.2
|
|
Canadian provincial bonds
|
(0.9
|
)
|
|
75.2
|
|
|
(1.6
|
)
|
|
118.6
|
|
|
(2.5
|
)
|
|
193.8
|
|
Municipal bonds
|
(0.1
|
)
|
|
42.0
|
|
|
(0.4
|
)
|
|
22.6
|
|
|
(0.5
|
)
|
|
64.6
|
|
Other securities
|
—
|
|
|
13.9
|
|
|
(0.7
|
)
|
|
45.7
|
|
|
(0.7
|
)
|
|
59.6
|
|
|
$
|
(3.7
|
)
|
|
$
|
982.1
|
|
|
$
|
(34.4
|
)
|
|
$
|
2,713.2
|
|
|
$
|
(38.1
|
)
|
|
$
|
3,695.3
|
|
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, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
Securities in unrealized loss position less than 12 months
|
|
Securities in unrealized loss position greater than 12 months
|
|
Total
|
|
Unrealized
losses
|
|
Fair market
value
|
|
Unrealized
losses
|
|
Fair market
value
|
|
Gross
unrealized
losses
|
|
Fair
market value
|
Corporate bonds
|
$
|
(56.7
|
)
|
|
$
|
2,724.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(56.7
|
)
|
|
$
|
2,724.9
|
|
U.S. Treasury and direct obligations of U.S. government agencies
|
(37.4
|
)
|
|
1,374.6
|
|
|
—
|
|
|
—
|
|
|
(37.4
|
)
|
|
1,374.6
|
|
Asset-backed securities
|
(19.7
|
)
|
|
1,060.1
|
|
|
—
|
|
|
—
|
|
|
(19.7
|
)
|
|
1,060.1
|
|
Canadian government obligations and
Canadian government agency obligations
|
(4.5
|
)
|
|
444.7
|
|
|
—
|
|
|
—
|
|
|
(4.5
|
)
|
|
444.7
|
|
Canadian provincial bonds
|
(5.6
|
)
|
|
239.7
|
|
|
—
|
|
|
—
|
|
|
(5.6
|
)
|
|
239.7
|
|
Municipal bonds
|
(4.4
|
)
|
|
188.7
|
|
|
—
|
|
|
—
|
|
|
(4.4
|
)
|
|
188.7
|
|
Other securities
|
(2.8
|
)
|
|
109.3
|
|
|
—
|
|
|
—
|
|
|
(2.8
|
)
|
|
109.3
|
|
|
$
|
(131.1
|
)
|
|
$
|
6,142.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(131.1
|
)
|
|
$
|
6,142.0
|
|
At
June 30, 2014
, 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
July 2014
to
June 2023
. U.S. Treasury and direct obligations of U.S. government agencies primarily include debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks with fair values of
$4,456.0 million
and
$1,223.7 million
, respectively. U.S. Treasury and direct obligations of U.S. government agencies 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
July 2014
through
February 2024
.
At
June 30, 2014
, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, auto loan, and rate reduction receivables with fair values of
$1,229.7 million
,
$364.9 million
, and
$157.7 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
June 30, 2014
.
At
June 30, 2014
, other securities and their fair value primarily represent: AA and AAA rated sovereign bonds of
$412.1 million
, AA and AAA rated supranational bonds of
$375.5 million
, AA rated mortgage-backed securities of
$97.2 million
, and AAA rated commercial mortgage-backed securities of
$48.3 million
that are guaranteed by Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("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:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
Corporate investments:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,983.6
|
|
|
$
|
1,699.1
|
|
Short-term marketable securities
|
|
2,032.2
|
|
|
28.0
|
|
Long-term marketable securities
|
|
54.1
|
|
|
314.0
|
|
Total corporate investments
|
|
$
|
4,069.9
|
|
|
$
|
2,041.1
|
|
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:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
Funds held for clients:
|
|
|
|
|
Restricted cash and cash equivalents held to satisfy client funds obligations
|
|
$
|
1,187.8
|
|
|
$
|
3,732.1
|
|
Restricted short-term marketable securities held to satisfy client funds obligations
|
|
1,312.5
|
|
|
1,407.7
|
|
Restricted long-term marketable securities held to satisfy client funds obligations
|
|
16,757.7
|
|
|
17,089.0
|
|
Total funds held for clients
|
|
$
|
19,258.0
|
|
|
$
|
22,228.8
|
|
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
$18,963.4 million
and
$21,956.3 million
as of
June 30, 2014
and
June 30, 2013
, 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
82%
of the available-for-sale securities held a AAA or AA rating at
June 30, 2014
, 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
June 30, 2014
.
Expected maturities of available-for-sale securities at
June 30, 2014
are as follows:
|
|
|
|
|
Due in one year or less
|
$
|
3,344.6
|
|
Due after one year to two years
|
4,600.0
|
|
Due after two years to three years
|
3,282.1
|
|
Due after three years to four years
|
2,942.1
|
|
Due after four years
|
5,987.7
|
|
|
|
|
Total available-for-sale securities
|
$
|
20,156.5
|
|
NOTE 7. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
June 30, 2013
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
Trade receivables
|
$
|
1,767.3
|
|
|
$
|
—
|
|
|
$
|
1,561.1
|
|
|
$
|
—
|
|
Notes receivable
|
94.8
|
|
|
169.9
|
|
|
91.0
|
|
|
154.7
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts - trade receivables
|
(51.0
|
)
|
|
—
|
|
|
(44.9
|
)
|
|
—
|
|
Allowance for doubtful accounts - notes receivable
|
(4.7
|
)
|
|
(8.3
|
)
|
|
(5.3
|
)
|
|
(9.0
|
)
|
Unearned income - notes receivable
|
(6.0
|
)
|
|
(6.2
|
)
|
|
(6.6
|
)
|
|
(7.0
|
)
|
|
$
|
1,800.4
|
|
|
$
|
155.4
|
|
|
$
|
1,595.3
|
|
|
$
|
138.7
|
|
Long-term receivables at
June 30, 2014
mature as follows:
|
|
|
|
|
|
2016
|
|
$
|
73.3
|
|
2017
|
|
$
|
52.6
|
|
2018
|
|
$
|
31.3
|
|
2019
|
|
$
|
12.7
|
|
Total
|
|
$
|
169.9
|
|
As of
June 30, 2014
, there are no notes receivable that are specifically reserved; the entire notes receivable reserve balance is comprised of non-specific reserves. As of
June 30, 2013
, the notes receivable balances with specific and non-specific reserves and the specific and non-specific reserves associated with those balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
Notes Receivable
|
|
Reserve
|
|
Current
|
|
Long-term
|
|
Current
|
|
Long-term
|
Specifically reserved
|
$
|
0.3
|
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
$
|
0.5
|
|
Non-specifically reserved
|
90.7
|
|
|
154.2
|
|
|
5.0
|
|
|
8.5
|
|
|
$
|
91.0
|
|
|
$
|
154.7
|
|
|
$
|
5.3
|
|
|
$
|
9.0
|
|
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
|
|
Net incremental provision
|
0.8
|
|
|
1.2
|
|
Recoveries
|
—
|
|
|
0.2
|
|
Chargeoffs
|
(0.9
|
)
|
|
(1.2
|
)
|
Balance at June 30, 2013
|
$
|
5.3
|
|
|
$
|
9.0
|
|
Net incremental provision
|
(0.1
|
)
|
|
(0.1
|
)
|
Recoveries
|
0.2
|
|
|
0.2
|
|
Chargeoffs
|
(0.7
|
)
|
|
(0.8
|
)
|
Balance at June 30, 2014
|
$
|
4.7
|
|
|
$
|
8.3
|
|
The allowance for doubtful accounts as a percentage of notes receivable was approximately
5%
as of
June 30, 2014
and
6%
as of
June 30, 2013
.
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. Approximately
100%
of notes receivable were current at
June 30, 2014
and
2013
.
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost and accumulated depreciation at June 30,
2014
and
2013
are as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Property, plant, and equipment:
|
|
|
|
|
Land and buildings
|
|
$
|
749.2
|
|
|
$
|
731.7
|
|
Data processing equipment
|
|
863.8
|
|
|
849.5
|
|
Furniture, leaseholds, and other
|
|
512.7
|
|
|
459.5
|
|
|
|
2,125.7
|
|
|
2,040.7
|
|
Less: accumulated depreciation
|
|
(1,348.3
|
)
|
|
(1,312.1
|
)
|
Property, plant, and equipment, net
|
|
$
|
777.4
|
|
|
$
|
728.6
|
|
Depreciation of property, plant and equipment was
$163.2 million
,
$149.9 million
, and
$146.8 million
for fiscal
2014
,
2013
, and
2012
, respectively.
NOTE 9. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in goodwill for the fiscal year ended
June 30, 2014
and
2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
Services
|
|
PEO
Services
|
|
Dealer
Services
|
|
Total
|
Balance at June 30, 2012
|
$
|
1,874.2
|
|
|
$
|
4.8
|
|
|
$
|
1,169.6
|
|
|
$
|
3,048.6
|
|
Additions and other adjustments, net
|
29.4
|
|
|
—
|
|
|
0.8
|
|
|
30.2
|
|
Currency translation adjustments
|
4.5
|
|
|
—
|
|
|
(1.4
|
)
|
|
3.1
|
|
Goodwill impairment
|
(42.7
|
)
|
|
—
|
|
|
—
|
|
|
(42.7
|
)
|
Balance at June 30, 2013
|
$
|
1,865.4
|
|
|
$
|
4.8
|
|
|
$
|
1,169.0
|
|
|
$
|
3,039.2
|
|
Additions and other adjustments, net
|
0.3
|
|
|
—
|
|
|
23.8
|
|
|
24.1
|
|
Currency translation adjustments
|
16.7
|
|
|
—
|
|
|
33.8
|
|
|
50.5
|
|
Balance at June 30, 2014
|
$
|
1,882.4
|
|
|
$
|
4.8
|
|
|
$
|
1,226.6
|
|
|
$
|
3,113.8
|
|
In fiscal 2014, the Company performed the required annual impairment tests of goodwill and determined that there was no impairment.
During the fourth quarter of fiscal 2013, the Company recorded an impairment charge of
$42.7 million
related to the ADP AdvancedMD reporting unit. The goodwill impairment was due to a decrease in the estimated fair value of the business resulting from a decline in the new business bookings growth and profitability projections of the business.
The remeasurement of goodwill is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using Company-specific information. The Company determined the fair value utilizing the income approach and the market approach. Under the income approach, the Company calculated the fair value based on the present value of the estimated cash flows. Cash flow projections were based on management's estimates of revenue growth rates and net operating income margins, taking into consideration market and industry conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the risk, size premium, and business specific characteristics related to the business's ability to execute on the projected cash flows. Under the market approach, the Company evaluated the fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. The unobservable inputs used to measure the fair value included projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost of capital, the determination of appropriate market comparison companies, and terminal growth rates.
In fiscal 2013, since the annual impairment test indicated that ADP AdvancedMD's carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test ("Step 2") was performed specific to this business. Under Step 2, the fair values of all assets and liabilities were estimated, including tangible assets, existing technology, customer lists, and trademarks for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of impairment. Assumptions used in measuring the value of these assets and liabilities included the discount rates, royalty rates, and attrition rates used in valuing the intangible assets. Upon completion of the annual test, the ADP AdvancedMD reporting unit was determined to be impaired. ADP AdvancedMD is currently reported in our Employer Services segment.
There were no accumulated goodwill impairments as of June 30, 2012.
Components of intangible assets, net, are as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
Software and software licenses
|
|
$
|
1,626.9
|
|
|
$
|
1,511.1
|
|
Customer contracts and lists
|
|
870.1
|
|
|
848.9
|
|
Other intangibles
|
|
241.4
|
|
|
241.7
|
|
|
|
2,738.4
|
|
|
2,601.7
|
|
Less accumulated amortization:
|
|
|
|
|
|
|
Software and software licenses
|
|
(1,318.4
|
)
|
|
(1,239.5
|
)
|
Customer contracts and lists
|
|
(591.2
|
)
|
|
(534.3
|
)
|
Other intangibles
|
|
(196.5
|
)
|
|
(184.7
|
)
|
|
|
(2,106.1
|
)
|
|
(1,958.5
|
)
|
Intangible assets, net
|
|
$
|
632.3
|
|
|
$
|
643.2
|
|
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,
9 years
for customer contracts and lists, and
7 years
for other intangibles). Amortization of intangible assets was
$173.0 million
,
$166.8 million
, and
$172.5 million
for fiscal
2014
,
2013
, and
2012
, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
|
|
|
|
|
|
Amount
|
Twelve months ending June 30, 2015
|
$
|
162.9
|
|
Twelve months ending June 30, 2016
|
$
|
132.4
|
|
Twelve months ending June 30, 2017
|
$
|
96.6
|
|
Twelve months ending June 30, 2018
|
$
|
56.8
|
|
Twelve months ending June 30, 2019
|
$
|
45.1
|
|
NOTE 10. SHORT TERM FINANCING
The Company has a
$2.25 billion
,
364
-day credit agreement with a group of lenders that matures in
June 2015
. In addition, the Company has a
five
-year
$3.25 billion
credit facility maturing in
June 2019
that contains an accordion feature under which the aggregate commitment can be increased by
$500.0 million
, subject to the availability of additional commitments. The Company also has an existing
$2.0 billion
five
-year credit facility that matures in
June 2018
that also contains an accordion feature under which the aggregate commitment can be increased by
$500.0 million
, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the effective federal funds rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit 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
June 30, 2014
under the credit agreements.
The Company’s U.S. short-term funding requirements related to client funds are sometimes obtained through a commercial paper program, which provides for the issuance of up to
$7.25 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. In July 2014, the Company increased the U.S. short-term commercial paper program to provide for the issuance of up to
$7.5 billion
in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from
overnight to up to 364 days
. At
June 30, 2014
, the Company had
$2,173.0 million
of commercial paper outstanding, which was subsequently repaid on
July 1, 2014
. At
June 30, 2013
, the Company had
no
commercial paper outstanding. In fiscal
2014
and
2013
, the Company's average borrowings were
$2.3 billion
and
$2.4 billion
, respectively, at weighted average interest rates of
0.1%
and
0.2%
, respectively. The weighted average maturity of the Company’s commercial paper in fiscal
2014
and
2013
approximated
2 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, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from
overnight to up to five business days
. At
June 30, 2014
, there were no outstanding obligations related to the reverse repurchase agreements. At
June 30, 2013
, the Company had
$245.9 million
of obligations outstanding related to reverse repurchase agreements, which were subsequently repaid on
July 2, 2013
. In fiscal
2014
and
2013
, the Company had average outstanding balances under reverse repurchase agreements of
$361.7 million
and
$362.0 million
, respectively, at weighted average interest rates of
0.5%
and
0.7%
, respectively. In addition, the Company has
$3.25 billion
available on a committed basis under the U.S. reverse repurchase agreements.
NOTE 11. EMPLOYEE BENEFIT PLANS
A. Stock-based Compensation Plans.
Stock-based compensation consists of the following:
|
|
•
|
Stock Options.
Stock options are granted to employees at exercise prices equal to the fair market value of the Company's common stock on the dates of grant. Stock options are issued under a graded vesting schedule and have a term of
10 years
. Options granted prior to July 1, 2008 generally vest ratably over
five years
and options granted after July 1, 2008 generally vest ratably over
four years
. Compensation expense is measured based on the fair value of the stock option on the grant date and recognized over the requisite service period for each separately vesting portion of the stock option award. Stock options are forfeited if the employee ceases to be employed by the Company prior to vesting.
|
|
|
•
|
Time-Based Restricted Stock and Time-Based Restricted Stock Units.
Time-based restricted stock and time-based restricted stock units granted prior to fiscal 2013 are subject to vesting periods of up to
five years
and awards granted in fiscal 2013 and later are subject to a vesting period of
two years
. Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.
|
Time-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. Employees are eligible to receive dividends on shares awarded under the time-based restricted stock program.
Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock units is recorded over the vesting period and is initially based on the fair value of the award on the grant date; and is subsequently remeasured at each reporting date during the vesting period. No dividend equivalents are paid on units awarded under the time-based restricted stock unit program.
|
|
•
|
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units.
Performance-based restricted stock and performance-based restricted stock units generally vest over a
one
to
three
year performance period and a subsequent service period of up to
26 months
. Under these programs, the Company communicates "target awards" at the beginning of the performance period with possible payouts at the end of the performance period ranging from
0%
to
150%
of the "target awards." Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.
|
Performance-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock is measured based upon the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period, based upon the probability that the performance target will be met. After the performance period, if the performance targets are achieved, employees are eligible to receive dividends on shares awarded under the performance-based restricted stock program.
Performance-based restricted stock units are settled in either cash or stock, depending on the employee's home country, and cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recorded over the vesting period and is initially based on the fair value of the award on the grant date and is subsequently remeasured at each reporting date during the one-year performance period, based upon the probability that the performance target will be met. Compensation expense relating to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date. Dividend equivalents are paid on awards settled in stock under the performance-based restricted stock unit program.
|
|
•
|
Employee Stock Purchase Plan.
The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to
95%
of the market value for the Company's common stock on the last day of the offering period. This plan has been deemed non-compensatory and therefore, no compensation expense has been recorded.
|
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. The Company repurchased
9.0 million
shares in fiscal
2014
as compared to
10.4 million
shares repurchased in fiscal
2013
. 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. Cash payments related to the settlement of vested time-based restricted stock units and performance-based restricted stock units were approximately
$1.2 million
,
$17.8 million
, and
$15.4 million
during fiscal years
2014
,
2013
, and
2012
.
The following table represents stock-based compensation expense and related income tax benefits in each of fiscal
2014
,
2013
, and
2012
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
2012
|
Operating expenses
|
|
$
|
25.7
|
|
|
$
|
17.9
|
|
|
$
|
17.2
|
|
Selling, general and administrative expenses
|
|
93.7
|
|
|
64.0
|
|
|
62.6
|
|
System development and programming costs
|
|
19.0
|
|
|
14.5
|
|
|
14.3
|
|
Total pretax stock-based compensation expense
|
|
$
|
138.4
|
|
|
$
|
96.4
|
|
|
$
|
94.1
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
49.5
|
|
|
$
|
34.3
|
|
|
$
|
33.5
|
|
As of
June 30, 2014
, the total remaining unrecognized compensation cost related to non-vested stock options, restricted stock units, and restricted stock awards amounted to
$16.8 million
,
$26.7 million
, and
$89.9 million
, respectively, which will be amortized over the weighted-average remaining requisite service periods of
2.1 years
,
1.3 years
, and
1.3 years
, respectively.
In fiscal
2014
, the following activity occurred under the Company’s existing plans:
Stock Options:
|
|
|
|
|
|
|
|
|
Year ended June 30, 2014
|
|
Number
of Options
(in thousands)
|
|
Weighted
Average Price
(in dollars)
|
Options outstanding, beginning of year
|
|
11,110
|
|
|
$
|
44
|
|
Options granted
|
|
1,489
|
|
|
$
|
79
|
|
Options exercised
|
|
(4,485
|
)
|
|
$
|
41
|
|
Options canceled
|
|
(183
|
)
|
|
$
|
48
|
|
Options outstanding, end of year
|
|
7,931
|
|
|
$
|
52
|
|
Options exercisable, end of year
|
|
5,005
|
|
|
$
|
42
|
|
Shares available for future grants, end of year
|
|
27,153
|
|
|
|
Shares reserved for issuance under stock option plans, end of year
|
|
35,084
|
|
|
|
Time-Based Restricted Stock and Time-Based Restricted Stock Units:
|
|
|
|
|
|
|
|
Year ended June 30, 2014
|
|
Number of Shares
(in thousands)
|
|
Number of Units
(in thousands)
|
Restricted shares/units outstanding at July 1, 2013
|
|
1,313
|
|
|
280
|
|
Restricted shares/units granted
|
|
1,290
|
|
|
308
|
|
Restricted shares/units vested
|
|
(167
|
)
|
|
—
|
|
Restricted shares/units forfeited
|
|
(95
|
)
|
|
(17
|
)
|
Restricted shares/units outstanding at June 30, 2014
|
|
2,341
|
|
|
571
|
|
Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:
|
|
|
|
|
|
|
|
Year ended June 30, 2014
|
|
Number of Shares
(in thousands)
|
|
Number of Units
(in thousands)
|
Restricted shares/units outstanding at July 1, 2013
|
|
521
|
|
|
38
|
|
Restricted shares/units granted
|
|
599
|
|
|
307
|
|
Restricted shares/units vested
|
|
(264
|
)
|
|
(22
|
)
|
Restricted shares/units forfeited
|
|
(53
|
)
|
|
(5
|
)
|
Restricted shares/units outstanding at June 30, 2014
|
|
803
|
|
|
318
|
|
The aggregate intrinsic value of stock options outstanding and exercisable as of
June 30, 2014
was
$216.9 million
and
$185.1 million
, respectively, which has a remaining life of
5.4 years
and
3.4 years
, respectively. The aggregate intrinsic value for stock options exercised in fiscal
2014
,
2013
, and
2012
was
$156.3 million
,
$135.1 million
, and
$83.8 million
, respectively.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
Risk-free interest rate
|
1.5% - 1.7%
|
|
|
0.8% - 1.0%
|
|
|
0.8% - 1.0%
|
|
Dividend yield
|
2.3% - 2.4%
|
|
|
2.7% - 2.9%
|
|
|
2.8% - 3.1%
|
|
Weighted average volatility factor
|
23.8
|
%
|
|
23.5% - 24.4%
|
|
|
24.9% - 25.9%
|
|
Weighted average expected life (in years)
|
5.4
|
|
|
5.3 - 5.4
|
|
|
5.2 - 5.3
|
|
Weighted average fair value (in dollars)
|
$
|
13.53
|
|
|
$
|
8.63
|
|
|
$
|
8.46
|
|
The weighted average fair values of shares granted were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30,
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
Performance-based restricted stock
|
$
|
60.38
|
|
|
$
|
55.13
|
|
|
$
|
44.33
|
|
Time-based restricted stock
|
$
|
71.50
|
|
|
$
|
58.72
|
|
|
$
|
54.40
|
|
B. Pension Plans
The Company has a defined benefit cash balance pension plan covering substantially all U.S. employees, under which employees are credited with a percentage of base pay plus interest. The plan interest credit rate varies from year-to-year based on the
ten
-year U.S. Treasury rate. Employees are fully vested upon completion of
three years
of service. The Company's policy is to make contributions within the range determined by generally accepted actuarial principles. In addition, the Company has various retirement plans for its non-U.S. employees and maintains a Supplemental Officers Retirement Plan (“SORP”). The SORP is a defined benefit plan pursuant to which the Company pays supplemental pension benefits to certain key officers upon retirement based upon the officers' years of service and compensation.
A
June 30
measurement date was used in determining the Company's benefit obligations and fair value of plan assets.
The Company is required to (a) recognize in its Consolidated Balance Sheets an asset for a plan's net overfunded status or a liability for a plan's net underfunded status, (b) measure a plan's assets and its obligations that determine its funded status as of the end of the employer's fiscal year, and (c) recognize changes in the funded status of a defined benefit plan in the year in which the changes occur in accumulated other comprehensive income (loss).
The Company's pension plans' funded status as of
June 30, 2014
and
2013
is as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
1,676.1
|
|
|
$
|
1,469.5
|
|
Actual return on plan assets
|
|
311.1
|
|
|
121.0
|
|
Employer contributions
|
|
84.7
|
|
|
135.3
|
|
Currency translation adjustments
|
|
4.2
|
|
|
(1.5
|
)
|
Benefits paid
|
|
(52.0
|
)
|
|
(48.2
|
)
|
Fair value of plan assets at end of year
|
|
$
|
2,024.1
|
|
|
$
|
1,676.1
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,427.8
|
|
|
$
|
1,412.1
|
|
Service cost
|
|
66.4
|
|
|
67.2
|
|
Interest cost
|
|
62.6
|
|
|
55.1
|
|
Actuarial losses/(gains)
|
|
87.2
|
|
|
(58.6
|
)
|
Currency translation adjustments
|
|
6.7
|
|
|
0.2
|
|
Benefits paid
|
|
(52.0
|
)
|
|
(48.2
|
)
|
Projected benefit obligation at end of year
|
|
$
|
1,598.7
|
|
|
$
|
1,427.8
|
|
|
|
|
|
|
Funded status - plan assets less benefit obligations
|
|
$
|
425.4
|
|
|
$
|
248.3
|
|
The amounts recognized on the Consolidated Balance Sheets as of
June 30, 2014
and
2013
consisted of:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
551.4
|
|
|
$
|
362.6
|
|
Current liabilities
|
|
(5.6
|
)
|
|
(4.7
|
)
|
Noncurrent liabilities
|
|
(120.4
|
)
|
|
(109.6
|
)
|
Net amount recognized
|
|
$
|
425.4
|
|
|
$
|
248.3
|
|
The accumulated benefit obligation for all defined benefit pension plans was
$1,581.9 million
and
$1,412.8 million
at
June 30, 2014
and
2013
, respectively.
The Company's pension plans with accumulated benefit obligations in excess of plan assets as of
June 30, 2014
and
2013
had the following projected benefit obligation, accumulated benefit obligation and fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
142.6
|
|
|
$
|
127.7
|
|
Accumulated benefit obligation
|
|
$
|
127.8
|
|
|
$
|
115.3
|
|
Fair value of plan assets
|
|
$
|
16.7
|
|
|
$
|
14.2
|
|
The components of net pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
Service cost – benefits earned during the period
|
|
$
|
66.4
|
|
|
$
|
67.2
|
|
|
$
|
57.2
|
|
Interest cost on projected benefits
|
|
62.6
|
|
|
55.1
|
|
|
62.1
|
|
Expected return on plan assets
|
|
(119.4
|
)
|
|
(109.5
|
)
|
|
(97.6
|
)
|
Net amortization and deferral
|
|
20.1
|
|
|
30.9
|
|
|
15.0
|
|
Net pension expense
|
|
$
|
29.7
|
|
|
$
|
43.7
|
|
|
$
|
36.7
|
|
The net actuarial loss, prior service cost, and transition obligation for the defined benefit pension plans that are included in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost are
$189.4 million
,
$4.2 million
, and
$0.3 million
, respectively, at
June 30, 2014
. The estimated net actuarial loss, prior service cost, and transition obligation for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year are
$16.3 million
,
$0.9 million
, and
$0.2 million
, respectively, at
June 30, 2014
.
Assumptions used to determine the actuarial present value of benefit obligations were:
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Discount rate
|
|
4.05
|
%
|
|
4.50
|
%
|
Increase in compensation levels
|
|
4.00
|
%
|
|
4.00
|
%
|
Assumptions used to determine the net pension expense generally were:
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
Discount rate
|
|
4.50
|
%
|
|
3.90
|
%
|
|
5.40
|
%
|
Expected long-term rate of return on assets
|
|
7.25
|
%
|
|
7.25
|
%
|
|
7.25
|
%
|
Increase in compensation levels
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
The discount rate is based upon published rates for high-quality fixed-income investments that produce cash flows that approximate the timing and amount of expected future benefit payments.
The expected long-term rate of return on assets is determined based on historical and expected future rates of return on plan assets considering the target asset mix and the long-term investment strategy.
Plan Assets
The Company's pension plans' asset allocations at
June 30, 2014
and
2013
by asset category were as follows:
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
|
|
|
|
U.S. fixed income securities
|
|
33
|
%
|
|
31
|
%
|
U.S. equity securities
|
|
20
|
%
|
|
21
|
%
|
International equity securities
|
|
21
|
%
|
|
21
|
%
|
Global equity securities
|
|
26
|
%
|
|
27
|
%
|
|
|
100
|
%
|
|
100
|
%
|
The Company's pension plans' asset investment strategy is designed to ensure prudent management of assets, consistent with long-term return objectives and the prompt fulfillment of all pension plan obligations. The investment strategy and asset mix were developed in coordination with an asset liability study conducted by external consultants to maximize the funded ratio
with the least amount of volatility. In fiscal 2013, the Company revised the target asset allocation of the U.S. pension plan to include global equities as a separate asset class to enhance the diversification of overall pension plan investments.
The pension plans' assets are currently invested in various asset classes with differing expected rates of return, correlations and volatilities, including large capitalization and small capitalization U.S. equities, international equities, U.S. fixed income securities and cash.
The target asset allocation ranges for the U.S. plan are generally as follows:
|
|
|
U.S. fixed income securities
|
35% - 45%
|
U.S. equity securities
|
14% - 24%
|
International equity securities
|
11% - 21%
|
Global equity securities
|
20% - 30%
|
The pension plans' fixed income portfolio is designed to match the duration and liquidity characteristics of the pension plans' liabilities. In addition, the pension plans invest only in investment-grade debt securities to ensure preservation of capital. The pension plans' equity portfolios are subject to diversification guidelines to reduce the impact of losses in single investments. Investment managers are prohibited from buying or selling commodities and from the short selling of securities.
None of the pension plans' assets are directly invested in the Company's stock, although the pension plans may hold a minimal amount of Company stock to the extent of the Company's participation in the S&P 500 Index.
The pension plans' investments included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. The pension plans' investments included in Level 2 are valued utilizing inputs obtained from an independent pricing service, which are reviewed by the Company for reasonableness. To determine the fair value of our Level 2 plan assets, 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 pension plans have no Level 3 investments at
June 30, 2014
.
The following table presents the investments of the pension plans measured at fair value at
June 30, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Commingled trusts
|
|
$
|
—
|
|
|
$
|
1,261.1
|
|
|
$
|
—
|
|
|
$
|
1,261.1
|
|
U.S. government securities
|
|
—
|
|
|
271.9
|
|
|
—
|
|
|
271.9
|
|
Mutual funds
|
|
88.2
|
|
|
—
|
|
|
—
|
|
|
88.2
|
|
Corporate and municipal bonds
|
|
—
|
|
|
368.3
|
|
|
—
|
|
|
368.3
|
|
Mortgage-backed security bonds
|
|
—
|
|
|
22.9
|
|
|
—
|
|
|
22.9
|
|
Total pension assets
|
|
$
|
88.2
|
|
|
$
|
1,924.2
|
|
|
$
|
—
|
|
|
$
|
2,012.4
|
|
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of
$11.7 million
as of
June 30, 2014
, which have been classified as Level 2 in the fair value hierarchy.
The following table presents the investments of the pension plans measured at fair value at
June 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Commingled trusts
|
|
$
|
—
|
|
|
$
|
1,050.7
|
|
|
$
|
—
|
|
|
$
|
1,050.7
|
|
U.S. government securities
|
|
—
|
|
|
228.3
|
|
|
—
|
|
|
228.3
|
|
Mutual funds
|
|
79.2
|
|
|
—
|
|
|
—
|
|
|
79.2
|
|
Corporate and municipal bonds
|
|
—
|
|
|
252.5
|
|
|
—
|
|
|
252.5
|
|
Mortgage-backed security bonds
|
|
—
|
|
|
22.7
|
|
|
—
|
|
|
22.7
|
|
Total pension assets
|
|
$
|
79.2
|
|
|
$
|
1,554.2
|
|
|
$
|
—
|
|
|
$
|
1,633.4
|
|
In addition to the investments in the above table, the pension plans also held cash and cash equivalents of
$42.7 million
as of
June 30, 2013
, which have been classified as Level 2 in the fair value hierarchy.
Contributions
During fiscal
2014
, the Company contributed
$84.7 million
to the pension plans. The Company expects to contribute
$9.5 million
to the pension plans during fiscal
2015
.
Estimated Future Benefit Payments
The benefits expected to be paid in each year from fiscal
2015
to
2019
are
$61.3 million
,
$66.9 million
,
$76.5 million
,
$85.6 million
and
$93.8 million
, respectively. The aggregate benefits expected to be paid in the five fiscal years from
2020
to
2024
are
$609.4 million
. The expected benefits to be paid are based on the same assumptions used to measure the Company's pension plans' benefit obligations at
June 30, 2014
and includes estimated future employee service.
C. Retirement and Savings Plan.
The Company has a 401(k) retirement and savings plan, which allows eligible employees to contribute up to
50%
of their compensation annually and allows highly compensated employees to contribute up to
12%
of their compensation annually. The Company matches a portion of employee contributions, which amounted to approximately
$77.6 million
,
$72.0 million
, and
$65.9 million
for the calendar years ended December 31,
2013
,
2012
, and
2011
, respectively.
NOTE 12. INCOME TAXES
Earnings from continuing operations before income taxes shown below are based on the geographic location to which such earnings are attributable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes:
|
|
|
|
|
|
|
United States
|
|
$
|
1,960.3
|
|
|
$
|
1,757.6
|
|
|
$
|
1,874.4
|
|
Foreign
|
|
314.3
|
|
|
318.5
|
|
|
227.3
|
|
|
|
$
|
2,274.6
|
|
|
$
|
2,076.1
|
|
|
$
|
2,101.7
|
|
The provision (benefit) for income taxes consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
666.6
|
|
|
$
|
539.2
|
|
|
$
|
537.6
|
|
Foreign
|
|
92.2
|
|
|
103.6
|
|
|
85.4
|
|
State
|
|
63.5
|
|
|
50.5
|
|
|
67.4
|
|
Total current
|
|
822.3
|
|
|
693.3
|
|
|
690.4
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(35.4
|
)
|
|
35.2
|
|
|
48.4
|
|
Foreign
|
|
(19.2
|
)
|
|
(14.9
|
)
|
|
(9.1
|
)
|
State
|
|
4.3
|
|
|
4.4
|
|
|
(3.2
|
)
|
Total deferred
|
|
(50.3
|
)
|
|
24.7
|
|
|
36.1
|
|
Total provision for income taxes
|
|
$
|
772.0
|
|
|
$
|
718.0
|
|
|
$
|
726.5
|
|
A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
%
|
|
2013
|
|
%
|
|
2012
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes at U.S. statutory rate
|
|
$
|
796.1
|
|
|
35.0
|
|
|
$
|
726.7
|
|
|
35.0
|
|
|
$
|
735.7
|
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in provision from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal tax benefit
|
|
44.2
|
|
|
1.9
|
|
|
35.3
|
|
|
1.7
|
|
|
37.6
|
|
|
1.8
|
|
U.S. tax on foreign income
|
|
26.8
|
|
|
1.2
|
|
|
85.3
|
|
|
4.2
|
|
|
51.4
|
|
|
2.5
|
|
Utilization of foreign tax credits
|
|
(27.5
|
)
|
|
(1.2
|
)
|
|
(94.4
|
)
|
|
(4.6
|
)
|
|
(51.7
|
)
|
|
(2.5
|
)
|
Section 199 - Qualified production activities
|
|
(23.0
|
)
|
|
(1.0
|
)
|
|
(22.3
|
)
|
|
(1.1
|
)
|
|
(22.4
|
)
|
|
(1.1
|
)
|
Other (A)
|
|
(44.6
|
)
|
|
(2.0
|
)
|
|
(12.6
|
)
|
|
(0.6
|
)
|
|
(24.1
|
)
|
|
(1.1
|
)
|
|
|
$
|
772.0
|
|
|
33.9
|
|
|
$
|
718.0
|
|
|
34.6
|
|
|
$
|
726.5
|
|
|
34.6
|
|
(A) Fiscal 2014 includes
$5.6 million
for the tax impact of non tax-deductible separation cost related to the Company's planned separation of the Dealer Services business which increased our fiscal 2014 effective tax rate
0.2 percentage points
. Fiscal
2013
includes
$16.0
million for the tax impact of the non tax-deductible goodwill impairment related to ADP AdvancedMD which increased our fiscal
2013
effective tax rate
0.7 percentage points
.
The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
|
|
|
|
|
|
|
|
|
|
Years ended June 30,
|
|
2014
|
|
2013
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
Accrued expenses not currently deductible
|
|
$
|
248.0
|
|
|
$
|
223.4
|
|
Stock-based compensation expense
|
|
87.3
|
|
|
84.1
|
|
Net operating losses
|
|
79.7
|
|
|
97.6
|
|
Other
|
|
36.4
|
|
|
39.5
|
|
|
|
451.4
|
|
|
444.6
|
|
Less: valuation allowances
|
|
(44.0
|
)
|
|
(48.8
|
)
|
Deferred tax assets, net
|
|
$
|
407.4
|
|
|
$
|
395.8
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Prepaid retirement benefits
|
|
$
|
183.7
|
|
|
$
|
146.2
|
|
Deferred revenue
|
|
71.9
|
|
|
62.9
|
|
Fixed and intangible assets
|
|
203.1
|
|
|
235.3
|
|
Prepaid expenses
|
|
100.7
|
|
|
88.9
|
|
Unrealized investment gains, net
|
|
112.3
|
|
|
99.8
|
|
Tax on unrepatriated earnings
|
|
14.1
|
|
|
12.3
|
|
Other
|
|
1.9
|
|
|
7.3
|
|
Deferred tax liabilities
|
|
$
|
687.7
|
|
|
$
|
652.7
|
|
Net deferred tax liabilities
|
|
$
|
280.3
|
|
|
$
|
256.9
|
|
There are
$29.4 million
and
$26.1 million
of current deferred tax assets included in other current assets on the Consolidated Balance Sheets at
June 30, 2014
and
2013
, respectively. There are
$76.6 million
and
$89.4 million
of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at
June 30, 2014
and
2013
, respectively. There are
$97.5 million
and
$138.0 million
of current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at
June 30, 2014
and
2013
, respectively.
Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately
$1,031.6 million
as of
June 30, 2014
, as the Company considers such earnings to be permanently reinvested
outside of the United States. The additional U.S. income tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impracticable to estimate the amount of net income tax that might be payable.
The Company has estimated foreign net operating loss carry-forwards of approximately
$105.5 million
as of
June 30, 2014
, of which
$47.3 million
expire through
2034
and
$58.2 million
has an indefinite utilization period. As of
June 30, 2014
, the Company has approximately
$77.8 million
of federal net operating loss carry-forwards from acquired companies. The net operating losses have an annual utilization limitation pursuant to section 382 of the Internal Revenue Code and expire through
2030
.
The Company has state net operating loss carry-forwards of approximately
$193.6 million
as of
June 30, 2014
, which expire through
2033
.
The Company has recorded valuation allowances of
$44.0 million
and
$48.8 million
at
June 30, 2014
and
2013
, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.
Income tax payments were approximately
$821.5 million
,
$691.0 million
, and
$658.7 million
for fiscal
2014
,
2013
, and
2012
, respectively.
As of June 30,
2014
,
2013
, and
2012
the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were
$56.7 million
,
$70.7 million
, and
$84.7 million
respectively. The amount that, if recognized, would impact the effective tax rate is
$31.2 million
,
$38.8 million
, and
$43.7 million
, respectively. The remainder, if recognized, would principally impact deferred taxes.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2014
|
|
Fiscal 2013
|
|
Fiscal 2012
|
|
|
|
|
|
|
|
Unrecognized tax benefits at beginning of the year
|
|
$
|
70.7
|
|
|
$
|
84.7
|
|
|
$
|
105.7
|
|
Additions for tax positions
|
|
3.6
|
|
|
5.0
|
|
|
8.0
|
|
Reductions for tax positions
|
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
Additions for tax positions of prior periods
|
|
7.0
|
|
|
5.3
|
|
|
13.0
|
|
Reductions for tax positions of prior periods
|
|
(7.4
|
)
|
|
(3.7
|
)
|
|
(21.6
|
)
|
Settlement with tax authorities
|
|
(4.4
|
)
|
|
(12.0
|
)
|
|
(4.2
|
)
|
Expiration of the statute of limitations
|
|
(13.7
|
)
|
|
(9.7
|
)
|
|
(9.8
|
)
|
Impact of foreign exchange rate fluctuations
|
|
0.9
|
|
|
1.1
|
|
|
(5.6
|
)
|
Unrecognized tax benefit at end of year
|
|
$
|
56.7
|
|
|
$
|
70.7
|
|
|
$
|
84.7
|
|
Interest expense and penalties associated with uncertain tax positions have been recorded in the provision for income taxes on the Statements of Consolidated Earnings. During the fiscal years ended June 30,
2014
,
2013
, and
2012
, the Company recorded interest (benefit) expense of
$(3.4) million
,
$0.4 million
, and
$1.2 million
, respectively. Penalties incurred during fiscal years ended June 30,
2014
,
2013
, and
2012
were
no
t material.
At
June 30, 2014
, the Company had accrued interest of
$10.7 million
recorded on the Consolidated Balance Sheets, of which
$0.1 million
was recorded within income taxes payable, and the remainder was recorded within other liabilities. At
June 30, 2013
, the Company had accrued interest of
$12.2 million
recorded on the Consolidated Balance Sheets, of which
$1.2 million
was recorded within income taxes payable, and the remainder was recorded within other liabilities. At
June 30, 2014
, the Company had accrued penalties of
$0.6 million
recorded on the Consolidated Balance Sheets, of which
$0.1 million
was recorded within income taxes payable, and the remainder was recorded within other liabilities. At
June 30, 2013
, the Company had accrued penalties of
$1.0 million
recorded on the Consolidated Balance Sheets, of which
$0.1 million
was recorded within income taxes payable, and the remainder was recorded within other liabilities.
The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations. The tax years currently under examination vary by jurisdiction. Examinations in progress in which the Company has significant business operations are as follows:
|
|
|
|
Taxing Jurisdiction
|
|
Fiscal Years under Examination
|
U.S. (IRS)
|
|
2013-2014
|
Arizona
|
|
1998-2007
|
Illinois
|
|
2004-2011
|
Minnesota
|
|
2005-2012
|
New York
|
|
2007-2009
|
New Jersey
|
|
2002-2009
|
The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions. The resolution of tax matters is not expected to have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company's Statements of Consolidated Earnings for a particular future period and on the Company's effective tax rate.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and tax periods could increase earnings up to
$10 million
in the next twelve months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.
In fiscal
2014
, the Company reached agreements with the IRS regarding all outstanding tax audit issues in dispute for the tax years through and including June 30,
2012
, which did not have a material impact to the consolidated financial statements of the Company.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has obligations under various facilities and equipment leases and software license agreements. Total expense under these agreements was approximately
$306.0 million
,
$270.1 million
, and
$252.6 million
in fiscal
2014
,
2013
, and
2012
, respectively, with minimum commitments at
June 30, 2014
as follows:
|
|
|
|
|
Years ending June 30,
|
|
|
|
2015
|
$
|
209.9
|
|
2016
|
147.3
|
|
2017
|
87.9
|
|
2018
|
53.2
|
|
2019
|
29.8
|
|
Thereafter
|
32.6
|
|
|
$
|
560.7
|
|
In addition to fixed rentals, certain leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices.
As of
June 30, 2014
, the Company has purchase commitments of approximately
$780.4 million
, including a reinsurance premium with ACE American Insurance Company for the fiscal 2015 policy year, as well as obligations related to purchase and maintenance agreements on our software, equipment, and other assets, of which
$379.7 million
relates to fiscal
2015
,
$157.2 million
relates to the fiscal year ending June 30,
2016
and the remaining
$243.5 million
relates to fiscal years ending June 30,
2017
through fiscal
2019
.
On July 18, 2011, athenahealth, Inc. filed a patent infringement lawsuit against ADP AdvancedMD, Inc. ("ADP AdvancedMD"), a subsidiary of the Company, seeking monetary damages, injunctive relief, and costs. The allegations include a claim 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 a patent owned by athenahealth, Inc. The parties are currently engaged in the discovery process and the court has not yet set a trial date. The Company believes that it has meritorious defenses to this lawsuit and continues 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.
NOTE 14. RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income is a measure of income that includes both net earnings and other comprehensive income (loss). Other comprehensive income (loss) results from items deferred on the Consolidated Balance Sheets in stockholders' equity. Other comprehensive income (loss) was
$162.8 million
,
$(214.8) million
, and
$(136.9) million
in fiscal
2014
,
2013
, and
2012
, respectively. Changes in Accumulated Other Comprehensive Income ("AOCI") by component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment
|
|
Net Gains on Available-for-sale Securities
|
|
|
Pension Liability
|
|
|
Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2012
|
|
42.0
|
|
|
461.3
|
|
|
|
(273.1
|
)
|
|
|
230.2
|
|
Other comprehensive (loss) income before
reclassification adjustments
|
|
(2.4
|
)
|
|
(394.6
|
)
|
|
|
68.2
|
|
|
|
(328.8
|
)
|
Tax effect
|
|
—
|
|
|
138.5
|
|
|
|
(25.7
|
)
|
|
|
112.8
|
|
Reclassification adjustments to net earnings
|
|
—
|
|
|
(28.6
|
)
|
(B)
|
|
31.7
|
|
(C)
|
|
3.1
|
|
Tax effect
|
|
—
|
|
|
10.1
|
|
|
|
(12.0
|
)
|
|
|
(1.9
|
)
|
Balance at June 30, 2013
|
|
$
|
39.6
|
|
|
$
|
186.7
|
|
|
|
$
|
(210.9
|
)
|
|
|
$
|
15.4
|
|
Other comprehensive income before
reclassification adjustments
|
|
58.4
|
|
|
53.5
|
|
|
|
102.8
|
|
|
|
214.7
|
|
Tax effect
|
|
—
|
|
|
(18.2
|
)
|
|
|
(39.7
|
)
|
|
|
(57.9
|
)
|
Reclassification adjustments to
net earnings
|
|
1.5
|
|
(A)
|
(16.5
|
)
|
(B)
|
|
20.7
|
|
(C)
|
|
5.7
|
|
Tax effect
|
|
—
|
|
|
6.1
|
|
|
|
(5.8
|
)
|
|
|
0.3
|
|
Balance at June 30, 2014
|
|
$
|
99.5
|
|
|
$
|
211.6
|
|
|
|
$
|
(132.9
|
)
|
|
|
$
|
178.2
|
|
(A) Reclassification adjustments out of AOCI are included within Net Earnings from Discontinued Operations, on the Statements of Consolidated Earnings.
(B) Reclassification adjustments out of AOCI are included within Other income, net, on the Statements of Consolidated Earnings.
(C) Reclassification adjustments out of AOCI are included in net pension expense (see Note 11).
NOTE 15. FINANCIAL DATA BY SEGMENT AND GEOGRAPHIC AREA
Based upon similar economic 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 charges and expenses that have not been allocated to the reportable segments, such as stock-based compensation expense, the fiscal 2014 separation costs related to the planned separation of Dealer Services, and the fiscal 2013 goodwill impairment charge.
Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility. There is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of
4.5%
. This allocation is made for management reasons so that the reportable segments' results are presented on a consistent basis without the impact of fluctuations in interest rates. This reconciling adjustment to the reportable segments' revenues and earnings from continuing operations before income taxes is eliminated in consolidation.
To align financial reporting with the manner in which the Company's chief operating decision maker assesses performance and makes decisions about resources to be allocated to the reportable segments, effective July 1, 2013, the Company no longer allocates a cost of capital charge to its reportable segments and no longer adjusts the operating results of its reportable segments on a constant exchange rate basis. As a result of these changes, all prior period amounts have been reclassified to conform to the current period presentation. These changes did not significantly affect reportable segment results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Services
|
|
PEO Services
|
|
Dealer Services
|
|
Other
|
|
Client Fund Interest
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing
operations
|
|
$
|
8,535.2
|
|
|
$
|
2,270.9
|
|
|
$
|
1,951.4
|
|
|
$
|
(0.9
|
)
|
|
$
|
(550.1
|
)
|
|
$
|
12,206.5
|
|
Earnings from continuing
operations before income taxes
|
|
2,517.8
|
|
|
234.3
|
|
|
428.1
|
|
|
(355.5
|
)
|
|
(550.1
|
)
|
|
2,274.6
|
|
Assets from continuing
operations
|
|
21,382.2
|
|
|
472.6
|
|
|
733.0
|
|
|
9,463.9
|
|
|
—
|
|
|
32,051.7
|
|
Capital expenditures
from continuing operations
|
|
59.7
|
|
|
0.9
|
|
|
43.6
|
|
|
114.5
|
|
|
—
|
|
|
218.7
|
|
Depreciation and amortization
|
|
152.4
|
|
|
1.2
|
|
|
64.7
|
|
|
117.9
|
|
|
—
|
|
|
336.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing
operations
|
|
$
|
7,924.9
|
|
|
$
|
1,973.2
|
|
|
$
|
1,820.2
|
|
|
$
|
1.7
|
|
|
$
|
(432.4
|
)
|
|
$
|
11,287.6
|
|
Earnings from continuing
operations before income taxes
|
|
2,216.8
|
|
|
199.7
|
|
|
375.3
|
|
|
(283.3
|
)
|
|
(432.4
|
)
|
|
2,076.1
|
|
Assets from continuing
operations
|
|
24,158.2
|
|
|
411.4
|
|
|
696.8
|
|
|
6,985.0
|
|
|
—
|
|
|
32,251.4
|
|
Capital expenditures
from continuing operations
|
|
57.9
|
|
|
0.6
|
|
|
35.1
|
|
|
81.2
|
|
|
—
|
|
|
174.8
|
|
Depreciation and amortization
|
|
132.2
|
|
|
1.2
|
|
|
61.2
|
|
|
122.1
|
|
|
—
|
|
|
316.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing
operations
|
|
$
|
7,449.4
|
|
|
$
|
1,771.4
|
|
|
$
|
1,676.2
|
|
|
$
|
5.5
|
|
|
$
|
(307.1
|
)
|
|
$
|
10,595.4
|
|
Earnings from continuing
operations before income taxes
|
|
2,054.6
|
|
|
171.1
|
|
|
322.1
|
|
|
(139.0
|
)
|
|
(307.1
|
)
|
|
2,101.7
|
|
Assets from continuing
operations
|
|
23,308.0
|
|
|
376.5
|
|
|
685.9
|
|
|
6,303.2
|
|
|
—
|
|
|
30,673.6
|
|
Capital expenditures
from continuing operations
|
|
39.9
|
|
|
1.2
|
|
|
39.7
|
|
|
65.4
|
|
|
—
|
|
|
146.2
|
|
Depreciation and amortization
|
|
127.0
|
|
|
1.0
|
|
|
57.7
|
|
|
133.6
|
|
|
—
|
|
|
319.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
Europe
|
|
Canada
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations
|
|
$
|
9,890.2
|
|
|
$
|
1,387.1
|
|
|
$
|
437.9
|
|
|
$
|
491.3
|
|
|
$
|
12,206.5
|
|
Assets from continuing operations
|
|
$
|
26,529.3
|
|
|
$
|
2,724.9
|
|
|
$
|
2,228.1
|
|
|
$
|
569.4
|
|
|
$
|
32,051.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations
|
|
$
|
9,114.9
|
|
|
$
|
1,279.1
|
|
|
$
|
442.4
|
|
|
$
|
451.2
|
|
|
$
|
11,287.6
|
|
Assets from continuing operations
|
|
$
|
27,327.0
|
|
|
$
|
2,261.2
|
|
|
$
|
2,166.0
|
|
|
$
|
497.2
|
|
|
$
|
32,251.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations
|
|
$
|
8,493.3
|
|
|
$
|
1,269.8
|
|
|
$
|
426.9
|
|
|
$
|
405.4
|
|
|
$
|
10,595.4
|
|
Assets from continuing operations
|
|
$
|
26,201.9
|
|
|
$
|
1,969.7
|
|
|
$
|
2,111.7
|
|
|
$
|
390.3
|
|
|
$
|
30,673.6
|
|
NOTE 16. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Summarized quarterly results of our continuing operations for the two fiscal years ended June 30,
2014
and June 30,
2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter (A)
|
Year ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,834.8
|
|
|
$
|
2,977.9
|
|
|
$
|
3,320.0
|
|
|
$
|
3,073.7
|
|
Costs of revenues
|
|
$
|
1,721.7
|
|
|
$
|
1,769.8
|
|
|
$
|
1,884.4
|
|
|
$
|
1,845.6
|
|
Gross profit
|
|
$
|
1,113.1
|
|
|
$
|
1,208.1
|
|
|
$
|
1,435.6
|
|
|
$
|
1,228.1
|
|
Net earnings from continuing operations
|
|
$
|
327.7
|
|
|
$
|
375.8
|
|
|
$
|
510.4
|
|
|
$
|
288.7
|
|
Basic earnings per share from continuing operations
|
|
$
|
0.68
|
|
|
$
|
0.79
|
|
|
$
|
1.07
|
|
|
$
|
0.60
|
|
Diluted earnings per share from continuing operations
|
|
$
|
0.68
|
|
|
$
|
0.78
|
|
|
$
|
1.06
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter (B)
|
Year ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,632.7
|
|
|
$
|
2,742.8
|
|
|
$
|
3,109.3
|
|
|
$
|
2,802.8
|
|
Costs of revenues
|
|
$
|
1,583.7
|
|
|
$
|
1,621.6
|
|
|
$
|
1,743.2
|
|
|
$
|
1,689.9
|
|
Gross profit
|
|
$
|
1,049.0
|
|
|
$
|
1,121.2
|
|
|
$
|
1,366.1
|
|
|
$
|
1,112.9
|
|
Net earnings from continuing operations
|
|
$
|
301.7
|
|
|
$
|
350.9
|
|
|
$
|
481.6
|
|
|
$
|
224.0
|
|
Basic earnings per share from continuing operations
|
|
$
|
0.62
|
|
|
$
|
0.73
|
|
|
$
|
1.00
|
|
|
$
|
0.46
|
|
Diluted earnings per share from continuing operations
|
|
$
|
0.62
|
|
|
$
|
0.72
|
|
|
$
|
0.99
|
|
|
$
|
0.46
|
|
(A) Net earnings from continuing operations, basic earnings per share from continuing operations and diluted earnings per share from continuing operations include the impact of separation costs related to the planned separation of the Company's Dealer Services business, which decreased net earnings from continuing operations by
$14.9 million
and both basic and diluted earnings per share from continuing operations by
$0.03
.
(B) Net earnings from continuing operations and diluted earnings per share from continuing operations includes the impact of a goodwill impairment charge related to ADP AdvancedMD, which decreased net earnings from continuing operations by
$42.7 million
and both basic and diluted earnings per share from continuing operations by
$0.09
.
NOTE 17. SUBSEQUENT EVENTS
With the exception of the repayment of commercial paper obligation on July 1, 2014, the July 2014 increase in the commercial paper program discussed in Note 10, and the item listed below, there are no further subsequent events for disclosure.
The Company's subsidiary captive insurance company, ADP Indemnity, paid a premium of
$167.9 million
in July 2014 to enter into a reinsurance arrangement with ACE American Insurance Company to cover substantially all losses for the fiscal 2015 policy year on terms substantially similar to the fiscal 2014 reinsurance policy to cover losses up to the
$1 million
per occurrence related to the workers' compensation and employer's liability deductible reimbursement insurance protection for PEO Services worksite employees.