Edgar Filing: AUTOMATIC DATA PROCESSING INC

Q4FY14 10K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2014
		OR
[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5397

AUTOMATIC DATA PROCESSING, INC.

(Exact name of registrant as specified in its charter)



Delaware	22-1467904
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

One ADP Boulevard, Roseland, New Jersey	07068
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: 973-974-5000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Stock, $0.10 Par Value (voting)	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [x] No [ ]

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [x]

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer [x]	Accelerated filer [ ]	Non-accelerated filer [ ]	Smaller reporting company [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [x] No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of the last business day of the Registrant's most recently completed second fiscal quarter was approximately $38,838,719,941. On July 31, 2014 there were 480,912,107 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE



Portions of the Registrant's Proxy Statement for its 2014 Annual Meeting of Stockholders.	Part III

Table of Contents




		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	13

Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	16
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
Item 9B.	Other Information	78

Part III
Item 10.	Directors, Executive Officers and Corporate Governance	79
Item 11.	Executive Compensation	80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81
Item 13.	Certain Relationships and Related Transactions, and Director Independence	81
Item 14.	Principal Accounting Fees and Services	81

Part IV.
Item 15.	Exhibits, Financial Statement Schedules	81
Signatures		85

Part I

Item 1. Business

CORPORATE BACKGROUND

General

ADP® was founded in 1949 on an innovative idea to help business owners focus on core business activities by relieving them from certain administrative tasks such as payroll. Automatic Data Processing, Inc. was incorporated in the State of Delaware in June 1961 and completed its initial public offering in September 1961. Today we are one of the world's leading providers of human capital management solutions to employers, as well as integrated computing solutions to vehicle dealers around the world. We offer solutions to businesses of all sizes, whether they have simple or complex needs, and serve approximately 637,000 clients in more than 125 countries. Our common stock is listed on the NASDAQ Global Select Market® under the symbol “ADP”.

When we refer to “we”, “us”, “our”, “ADP”, or the “Company” in this Annual Report on Form 10-K, we mean Automatic Data Processing, Inc. and its consolidated subsidiaries.

Available Information

Our corporate website, www.adp.com, provides materials for investors and information about our services. ADP's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission (SEC) and are also available at the SEC's website at www.sec.gov. The content on any website referenced in this filing is not incorporated by reference into this filing unless expressly noted otherwise.

BUSINESS OVERVIEW

ADP's Mission and Strategy

For 65 years, ADP’s mission has been to help organizations unlock their business potential with our insightful solutions. Our commitment to service excellence lies at the core of our relationship with each of our clients, whether a small, midsized or large organization, in one or multiple countries. We innovate to deliver new products and services that anticipate client needs in all of our markets. We help businesses focus on and optimize the most important investment they make - their investment in their people. From recruitment to talent management to retirement, our unique combination of expertise and technology offers insights that help our clients leverage human capital management (HCM) to drive better business results. Our future success also depends on our recruiting, hiring, developing and retaining highly qualified, motivated and diverse talent. Predicated on these priorities, our business strategy is based upon the following three strategic pillars, which are designed to position ADP as the global market leader in HCM services:


•	grow our integrated suite of cloud-based HCM, benefits, and payroll solutions to serve the U.S. market;


•	invest to grow and scale our HR Business Process Outsourcing (BPO) solutions by leveraging our platforms and processes; and


•	leverage our global presence to offer clients HCM, benefits, and payroll solutions where they do business.

Reportable Segments

ADP's three reportable business segments are: Employer Services; Professional Employer Organization (PEO) Services; and Dealer Services. For financial data by segment and by geographic area, see Note 15 to the “Consolidated Financial Statements” contained in this Annual Report on Form 10-K.

On April 10, 2014, we announced that our Board of Directors approved a plan to separate our Dealer Services business into an independent publicly traded company through a tax-free spin-off of 100% of our Dealer Services business to ADP shareholders. The spin-off is subject to required regulatory approvals and reviews and we expect to complete the separation by October 2014. For more information on the spin-off of our Dealer Services business, see Note 2 to the “Consolidated Financial Statements” contained in this Annual Report on Form 10-K.

Employer Services. Employer Services is our largest segment, with 36,000 associates in 35 countries. Employer Services offers a comprehensive range of business outsourcing and HCM solutions, including:


•	Payroll Services


•	Benefits Administration


•	Talent Management


•	Human Resources Management


•	Time and Attendance Management


•	Insurance Services


•	Retirement Services


•	Tax, Compliance and Payment Solutions

Employer Services’ approach to the market is to deliver solutions and services that best meet clients’ requirements. Employer Services serves clients ranging from small businesses with fewer than 50 employees to large enterprises with multinational operations.

Professional Employer Organization (PEO) Services. ADP's PEO business, called ADP TotalSource®, provides approximately 7,800 clients with comprehensive employment administration outsourcing solutions through a co-employment relationship in which employees who work at a client's location (referred to as “worksite employees”) are co-employed by us and the client. ADP TotalSource is the largest PEO in the United States based on the number of worksite employees, serving approximately 340,000 worksite employees in all 50 states.

Dealer Services. Dealer Services provides integrated dealer management systems, digital marketing/advertising solutions and other business management solutions to retailers, distributors and manufacturers of automobiles, minivans, sport utility vehicles, light and heavy trucks, construction equipment, agricultural equipment, motorcycles, boats and other marine vehicles and recreational vehicles. Dealer Services provides solutions to a diverse client base throughout the United States and in approximately 100 additional countries internationally, serving more than 26,000 automotive retailers and original equipment manufacturers.

PRODUCTS AND SERVICES

Employer Services

Human Capital Management (HCM). In order to serve the unique needs of diverse types of businesses, ADP provides a range of solutions, via a software and service-based delivery model, which businesses of all sizes can use to recruit, staff, pay, manage, and retain employees. We serve more than 430,000 clients via ADP's software as a service (SaaS) offerings, commonly referred to as "the cloud." As a leader in the growing HR Business Process Outsourcing (BPO) market, we also offer fully integrated outsourcing solutions that enable our clients to outsource their HR, time and attendance management, payroll, and benefits administration functions to ADP. In addition, our mobile applications enable businesses to process their payroll, and gives more than 2.5 million of our clients' employees convenient access to their benefits, payroll, time and attendance and HR information, via multiple mobile device platforms.

Integrated HCM Solutions. Our premier suite of human capital management products offers integrated solutions to assist employers of all sizes in all stages of the employment cycle from recruitment to retirement:

•

RUN Powered by ADP® is used by more than 380,000 small businesses. It combines a software platform for managing small business payroll, human resources management and tax compliance administration, with 24/7 service and support from our team of small business experts. RUN Powered by ADP also integrates with other available ADP services, such as time and attendance tracking, workers compensation insurance premium payment plans, and certain retirement plans.

•

ADP Resource® is a comprehensive human resources management outsourcing solution for small businesses that offers payroll and tax administration, recruitment and selection, employee assistance, employee training programs, and risk management and safety programs. ADP Resource also integrates with other available ADP services, such as 401(k) plan administration services and workers compensation insurance premium payment plans.


•	ADP Workforce Now® is a flexible HCM solution used by more than 50,000 midsized businesses to manage their employees across more than 30 countries. In addition, ADP Workforce Now puts powerful mobile HR solutions

in the hands of client employees, and opens access to developers and system integrators through the platform’s Application Programming Interface (API) Library. More businesses use ADP Workforce Now than any other HCM solution designed for the midmarket today.


•	ADP Vantage HCM® is a solution for large enterprises with more than 1,000 employees. It offers a comprehensive set of human capital management capabilities within a single solution that unifies the five major areas of HCM: human resources management, benefits administration, payroll, time and attendance management, and talent management.

•

ADP GlobalView® and ADP Streamline® offer HCM solutions to multinational companies. GlobalView allows the largest multinational clients to standardize their HCM strategies across geographical regions, including multi-country payroll and human resources management, talent management, and time and attendance management. ADP Streamline® offers global payroll processing and human resources administration services to businesses with small and midsized operations in multiple countries. ADP GlobalView Select combines GlobalView and Streamline offerings into one integrated solution that allows a large multinational client to cover its multi-country payroll and other HCM needs across multiple countries covering the full range of its large, midsized and small operations.

Payroll Services. ADP provides flexible payroll services to employers of all sizes, including the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports. ADP provides employers with a wide range of payroll options ranging from manually calling in their payroll to our specialists; entering their payroll data online with an internet-based solution or via a mobile device; or outsourcing their entire payroll process to ADP. ADP also enables its largest clients to interface their major enterprise resource planning (ERP) applications with ADP's outsourced payroll services. Employers can choose a variety of payroll payment options ranging from professionally printed checks to ADP's electronic wage payment and payroll card solutions. ADP also prepares and files federal, state and local payroll tax returns and quarterly and annual Social Security, Medicare, and federal, state and local income tax withholding reports on our clients' behalf. In addition, as part of our W-2 management services, ADP supplies year-end tax statements to our clients' employees. For those clients who choose to process payroll in-house, ADP also delivers our Tax, Compliance and Payment Solutions described below.

Benefits Administration. ADP provides flexible solutions for outsourced employee benefits administration. Employee benefits administration options include health and welfare administration, spending account management (health care spending accounts, dependent care spending accounts, health reimbursement arrangements, health savings accounts, commuter benefits, and employee reimbursement services), COBRA administration, direct bill services, leave administration services, carrier enrollment services, employee communication services, and dependent verification services. In addition, ADP benefits administration solutions offer employers an efficient cloud-based eligibility and enrollment system. It provides their employees with tools, communications, and other resources they need to understand their benefits options and make informed choices. In addition, ADP provides tools and solutions to assist employers in meeting the demands of health care reform and their related employer responsibilities, as well as strategic insight into employer trends.

Talent Management. ADP's Talent Management Solutions simplify the talent acquisition and performance management process from recruitment to ongoing employee development. ADP's proprietary recruiting automation platform helps employers find, recruit, and hire talent quickly and cost effectively. Employers can also meet their hiring needs by outsourcing their internal recruitment function to ADP. ADP's pre-employment services enable employers to track candidates, screen candidate backgrounds, and integrate data to facilitate the onboarding process for new hires. ADP's performance and compensation management applications provide tools to automate the entire performance management process from goal planning to employee evaluations and help employers align compensation with employee performance within budgetary constraints. Integrated with ADP's performance management applications, ADP's career development and succession management solutions offer tools that allow employees to build and update their employee profiles, search for potential positions within the organization, and create-forward looking career paths, while enabling managers to identify and mitigate potential retention risks. In addition, ADP's learning management solutions provide a single point of access to learning and knowledge management capabilities via multiple online delivery methods.

Human Resources Management. Commonly referred to as Human Resource Information Systems (HRIS), ADP's Human Resources Management Solutions provide employers with a single source of record to support the entry, validation, maintenance, and reporting of data required for effective HR management, such as employee names, addresses, job types, salary grades, employment history, and educational background. ADP's Human Resources Management Solutions can also be integrated with ADP's Talent Management Solutions and other HCM offerings.

Time and Attendance Management. ADP offers multiple options for employers of all sizes to collect employee time and attendance information, including electronic timesheets, badge cards, biometric and touch screen time clocks, telephone/interactive voice response, and mobile smartphones and tablets. ADP's time and attendance tracking tools simplify employee scheduling and automate the calculation and reporting of hours worked, helping employers enforce leave and attendance policies more consistently, control overtime, and manage compliance with wage and hour regulations.

Insurance Services. ADP Insurance Services, in conjunction with our licensed insurance agency, Automatic Data Processing Insurance Agency, Inc., facilitates access to workers compensation and group health insurance for small and midsized clients through a variety of insurance carriers. ADP's automated Pay-by-Pay® premium payment program calculates and collects workers' compensation premium payments each pay period.

Retirement Services. ADP Retirement Services helps employers administer various types of retirement plans, such as 401(k) (including “safe harbor” 401(k) and Roth 401(k)), profit sharing (including new comparability), SIMPLE IRA, and executive deferred compensation plans. ADP Retirement Services offers a full service 401(k) plan program, which provides recordkeeping and administrative services, combined with an investment platform offered through ADP Broker-Dealer, Inc. that gives our clients' employees access to a wide range of non-proprietary investment options and online tools to monitor the performance of their investments. ADP Retirement Services also offers trustee services through a third party.

Tax, Compliance and Payment Solutions

Employment Tax Services. As part of ADP's employment tax services, ADP prepares and files employment tax returns on our clients' behalf with federal, state, and local tax agencies. In connection with these services, ADP collects federal, state, and local employment taxes from clients and remits these taxes to the appropriate taxing agencies via an electronic interface with over 7,000 federal, state, and local tax agencies in the United States. ADP also responds to inquiries from tax agencies and assists with filing tax protests on the clients' behalf. In addition to our full service payroll tax solution, ADP offers a software solution for do-it-yourself employment tax management that can complement a client's in-house payroll system. In our fiscal year ended June 30, 2014 (“fiscal 2014”), ADP in the United States processed and delivered approximately 53 million employee year-end tax statements and approximately 44 million employer payroll tax returns and deposits, and moved approximately $1.5 trillion in client funds to taxing agencies and our clients' employees via electronic transfer, direct deposit, and ADPCheck^TM.

Tax Credits Services. ADP Tax Credits Services helps clients take advantage of tax credit opportunities as they hire new employees, including federal, state, and local tax credits based on geography, demographics, and other criteria such as work opportunity tax credits, federal empowerment zone employment credits, economic development incentives, training grants, and many other incentives. Integrating the entire process with clients' existing hiring programs, ADP Tax Credits Services helps clients screen job applicants and process eligibility forms, monitor and manage screening and form compliance, submit forms to state agencies for tax credit certification, calculate credits, and produce a detailed audit trail.

Wage Garnishment Services. ADP offers an integrated solution to help our clients manage the wage garnishment process through integration with the client's payroll system. As part of this comprehensive service, ADP also helps process required correspondence to payee agencies, lien processing and order evaluation, and notices. ADP's wage garnishment services also includes a call center to field garnishment-related inquiries from employees, payees, and other third parties.

Unemployment Claims Management. ADP offers a single-source solution to help manage the entire unemployment claims process, including pre-separation planning, claim protests and administration, appeal processing, hearing representation, and audits of benefit charges.

Wage Payment and Pay Card Solutions. In addition to ADPCheck, ADP's traditional payroll check offering, ADP offers electronic payroll disbursement options that can be integrated with the client's payroll systems and ERP applications. With ALINE Pay by ADP®, payroll can be disbursed via ALINE Check by ADP®, direct deposit, or the ALINE Card by ADP®, a network-branded payroll card. ALINE Check provides employees with an independent and convenient self-issued means to receive wages that includes the standard features available with a traditionally-issued payroll check. Using the ALINE Card, employees can access their payroll funds immediately in several ways, including via a network member bank or an ATM or point of sale terminal. The ALINE Card can also be used to make purchases or pay bills. Additional features of the ALINE Card include the ability to load additional funds onto the card, receive electronic payments such as government benefits or tax refunds, and transfer funds from the card to a U.S. bank account.

Professional Employer Organization (PEO) Services' Products and Services

ADP TotalSource®, ADP's PEO business, offers small and midsized businesses a comprehensive human resources outsourcing solution through a co-employment model. As a PEO, ADP TotalSource provides integrated human resources management services while the client continues to direct the day-to-day job-related duties of the employees. ADP TotalSource integrates key HR management and employee benefits functions, including HR administration, employee benefits, and employer liability management, into a single-source solution:

HR Administration. ADP TotalSource offers a variety of comprehensive, integrated HR administration services, such as:


•	employee recruitment and selection


•	payroll and tax administration


•	time and attendance management


•	benefits administration


•	employee training and development


•	online HR management tools


•	employee leave administration

Employee Benefits. Through the co-employment model, ADP TotalSource provides eligible worksite employees with access to:


•	group health, dental and vision coverage


•	a 401(k) retirement savings plan


•	health savings accounts


•	flexible spending accounts


•	group term life and disability coverage


•	an employee assistance program

Employer Liability Management. ADP TotalSource helps clients manage and limit employment related risks and related costs by providing:


•	a workers' compensation program


•	unemployment claims management


•	safety compliance guidance and access to safety training


•	access to employment practices liability insurance


•	guidance on compliance with federal, state and local employment laws and regulations

ADP TotalSource's scale allows us to deliver a variety of benefits and services with efficiency and value typically out of reach to small and midsized businesses. ADP TotalSource is the largest PEO in the United States based on the number of worksite employees. ADP TotalSource has 59 offices located in 29 states and serves approximately 7,800 clients and an aggregate of approximately 340,000 worksite employees in all 50 states.

Dealer Services

Dealer Management Systems and Other Retail Solutions. Dealer Services' Dealer Management Systems (DMS) offer enterprise technology solutions that provide an integrated suite of features and services that enable our clients to manage their information systems and process workflows involved in running automotive retail operations. DMS solutions are available as “on-site” applications installed at the retail location or as managed services solutions in which clients access ADP's DMS solutions through a cloud-based IT environment managed by ADP. The DMS accounting modules help clients manage all standard accounting procedures, including general ledger, receivables and balance sheet maintenance. The DMS service and parts modules enable automation of client operations such as service and repair order processing, purchase orders and parts ordering. The DMS sales and finance and insurance (F&I) modules facilitate clients' ability to manage customer inquiries, develop, analyze, present, and consummate transactions with customers, manage and print the forms needed to consummate such transactions, and track funds. Dealer Services also offers a full range of additional solutions that address every department and functional area of the dealership, including customer relationship management (CRM) applications, vehicle inventory and lot management solutions, and telephone systems. These additional solutions are typically fully integrated with the DMS.

Digital Marketing Solutions. Dealer Services provides digital marketing solutions under the Cobalt® brand, which ADP acquired in 2010. Cobalt digital marketing/advertising solutions and services include dealership websites, sales leads, email marketing, search and display advertising, and social media marketing and management services. These solutions are sold both as retail network marketing programs in conjunction with the manufacturers of ten leading automotive brands, as well as directly to automobile dealerships and regional dealer associations. Dealer Services' digital marketing solutions allow dealerships and original equipment manufacturers to connect with customers and manage their brands.

Network Management Solutions. Dealer Services designs, establishes, and maintains communications network solutions for its dealership clients that allow interactive communications among multiple site dealerships and connect franchised dealers with their vehicle manufacturer franchisors. These networks are used for activities such as new vehicle ordering and status inquiry, warranty submission and validation, parts and vehicle location, dealership customer credit application submission and decision-making, vehicle repair estimation, and acquisition of vehicle registration and lien holder information. Dealer Services' network solutions also include integrated IP telephony systems, wired and wireless network access solutions, and security management applications.

Training Services. Dealer Services offers comprehensive training and business process consulting services for many of its business solutions via multiple delivery methods. Task-specific internet-based courses are fully automated and available 24 hours a day. Dealer Services also provides interactive instructor-led training via internet-based sessions or live classroom courses that are customized to meet our clients' specific needs.

MARKETS AND MARKETING METHODS

Employer Services offers its products and services in the United States and other countries. In fiscal 2014, 79% of Employer Services' revenues were from the United States, 14% were from Europe, 4% were from Canada, and 3% were from South America, Australia, and Asia. ADP GlobalView is available to the largest multinational clients in 41 different countries and ADP Streamline is available to clients with small and midsized operations in 100 different countries. In addition, Employer Services offers in-country payroll and human resources outsourcing solutions to both small and large clients in 33 countries. In Canada, we are a leading provider of payroll processing (including full departmental outsourcing) and human resource administration services. Within Europe, we have business operations supporting our in-country solutions in France, Germany, Italy, the Netherlands, Poland, Spain, Switzerland, and the United Kingdom. We also offer payroll outsourcing services as well as HCM solutions in South America (in Brazil, Chile, Argentina, and Peru), China, India, and Australia. We offer wage and tax collection and remittance services in Canada, the United Kingdom, the Netherlands, and France. PEO Services offers services exclusively in the United States.

Dealer Services primarily serves automobile dealerships, which in turn may be dependent on a relatively small number of automobile manufacturers, but also serves truck, powersports (i.e., motorcycle, marine, and RV) and heavy equipment dealers, auto repair shops, used car lots, state departments of motor vehicles, vehicle manufacturers, and vehicle distributors. Dealer Services has offerings in 100 countries across North America, Europe, Africa, the Middle East, and the Asia Pacific region.

We market our products and services primarily through our direct sales force. Employer Services also markets its solutions through indirect sales channels, such as marketing relationships with banks and accountants, among others. In addition, Dealer Services uses distributors to sell, implement and support its solutions in select emerging markets. None of ADP's major business groups has a single homogenous client base or market. While concentrations of clients exist in specific industries, no one client or industry group is material to ADP's overall revenues. ADP enjoys a leadership position in each of its major service offerings and does not believe any major service or major business unit of ADP is subject to unique market risk.

COMPETITION

The industries in which ADP operates are highly competitive. ADP knows of no reliable statistics by which it can determine the number of its competitors, but it believes that it is one of the largest providers of business outsourcing solutions in the world. Employer Services and PEO Services compete with other independent business outsourcing companies, companies providing enterprise resource planning services, software companies and financial institutions. In addition, another competitive factor in the industries in which Employer Services and PEO Services operate is a company's use of third party software applications or a captive in-house function, whereby a company installs and operates its own business processing systems. Dealer Services' competitors include full service DMS providers, such as The Reynolds & Reynolds Company (Dealer Services' largest DMS competitor in the United States and Canada), Dealertrack Technologies, Inc., and companies providing applications and services that compete with Dealer Services' non-DMS applications and services, such as Auto Trader Group, Inc. and Dealer.com, Inc.

INDUSTRY REGULATION

Our business is subject to a wide range of complex laws and regulations. In addition, many of our products and services are designed to assist clients with their compliance with certain laws and regulations to which they are subject. We have developed and continue to enhance compliance programs and policies to monitor and address the legal and regulatory requirements applicable to our products, services, and operations, including dedicated compliance personnel and training programs.

As one of the world's largest providers of business outsourcing solutions, our systems contain a significant amount of both sensitive client data and data related to employees of our clients. We are, therefore, subject to compliance obligations under both federal and state privacy and data security-related laws, including, with respect to some of our businesses such as our COBRA, flexible spending account and insurance services businesses, ADP AdvancedMD® and ADP TotalSource®, the Health Insurance Portability and Accountability Act of 1996. We are also subject to federal and state security breach notification laws with respect to both our own employee data and client employee data. Additionally, the changing nature of privacy laws in the United States, the European Union and elsewhere could impact our processing of personal information of our employees and on behalf of our clients.

As part of our payroll and payroll tax management services, we move client funds to taxing authorities and our clients' employees via electronic transfer, direct deposit, and ADPCheck. Certain elements of our U.S. money transmission activities, including our electronic payment and prepaid access (payroll pay card) offerings, are subject to certain licensing requirements. Elements of our money transmission activities outside of the United States are subject to similar laws and requirements in the countries in which we offer such services. In addition, our U.S. prepaid access (payroll card) offering is subject to the anti-money laundering and reporting provisions of the Bank Secrecy Act. Our employee screening and selection services business offers background checking services that are subject to the Fair Credit Reporting Act. Our PEO business (ADP TotalSource) is subject to various state licensing requirements. In addition, because ADP TotalSource is a co-employer with respect to its clients' worksite employees, we may assume certain obligations and responsibilities of an employer under federal and state tax, insurance and employment laws.

In addition, many of our businesses offer products and services that assist our clients in complying with certain laws and regulations to which they are subject; although the laws and regulations apply to our clients and not to ADP, changes in such laws or regulations may affect our operations, products and services. For example, our HCM solutions help clients manage their compliance with certain requirements of the Patient Protection and Affordable Care Act. Our COBRA administration services and flexible spending account services are designed to comply with relevant federal guidelines relating to, respectively, employers' benefits continuation obligations and the requirements of Section 125 of the Internal Revenue Code. Similarly, our Tax Credits Services business, which helps clients take advantage of tax credit opportunities as they hire new employees, is based on federal, state, or local tax laws and regulations allowing for tax credits.

The foregoing description does not include an exhaustive list of the laws and regulations governing and impacting our business. See the discussion contained in the "Risk Factors" section in Part I, Item 1A of this Annual Report on Form 10-K for information regarding changes in laws and regulations that may decrease our revenues and earnings.

CLIENTS AND CLIENT CONTRACTS

ADP provides its services to approximately 637,000 clients. In fiscal 2014, no single client or group of affiliated clients accounted for revenues in excess of 2% of annual consolidated revenues.

ADP is continuously in the process of performing implementation services for new clients. Depending on the service agreement and/or the size of the client, the installation or conversion period for new clients could vary from a short period of time for a small Employer Services client (as little as 24 hours) to a longer period for a large Employer Services client or a Dealer Services client with multiple deliverables (generally six to twelve months), and in some cases may exceed two years for a large GlobalView client or other large, complicated implementation. Although we monitor sales that have not yet been billed or installed, we do not view this metric as material in light of the recurring nature of our business. This is not a reported number, but it is used by management as a planning tool relating to resources needed to install services, and a means of assessing our performance against the installation timing expectations of our clients.

Our business is typically characterized by long-term client relationships that result in recurring revenue. Our services are provided under written price quotations or service agreements having varying terms and conditions. No one price quotation or service agreement is material to ADP. ADP's client retention is estimated at approximately 12 years in Employer Services, approximately 7 years in PEO Services, and approximately 12 years in Dealer Services, and has not varied significantly from period to period.

SYSTEMS DEVELOPMENT AND PROGRAMMING

During the fiscal years ended June 30, 2014, 2013, and 2012, ADP invested approximately $834 million, $757 million, and $699 million, respectively, from continuing operations, in systems development and programming, migration to new computing technologies and the development of new products and maintenance of our existing technologies, including purchases of new software and software licenses.

PRODUCT DEVELOPMENT

ADP continually upgrades, enhances, and expands its existing solutions and services. Generally, no new solution or service has a significant effect on ADP's revenues or negatively impacts its existing solutions and services, and ADP's solutions and services have significant remaining life cycles.

LICENSES

ADP is the licensee under a number of agreements for computer programs and databases. ADP's business is not dependent upon a single license or group of licenses. Third-party licenses, patents, trademarks, and franchises are not material to ADP's business as a whole.

NUMBER OF EMPLOYEES

ADP employed approximately 61,000 persons as of June 30, 2014.

Item 1A. Risk Factors

Our businesses routinely encounter and address risks, some of which may cause our future results to be different than we currently anticipate. Risk factors described below represent our current view of some of the most important risks facing our businesses and are important to understanding our business. The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk and the consolidated financial statements and related notes included in this Annual Report on Form 10-K. This discussion includes a number of forward-looking statements. You should refer to the description of the qualifications and limitations on forward-looking statements in the first paragraph under Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Annual Report on Form 10-K. The level of importance of each of the following risks may vary from time to time, and any of these risks may have a material effect on our business.

Changes in laws and regulations may decrease our revenues and earnings

Our business is subject to a wide range of complex laws and regulations. Changes in laws or governmental regulations, or changes in the interpretation of existing laws or regulations by a regulatory authority, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business. For example, a change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities would adversely impact interest income from investing client funds before such funds are remitted to the applicable taxing authorities or client employees. Changes in taxation requirements in the United States or in other countries could adversely affect our effective tax rate and our net income. Changes in laws that govern the co-employment arrangement between a professional employer organization and its worksite employees may require us to change the manner in which we conduct some aspects of our PEO business. Health care reform under the Affordable Care Act, as amended, related state laws, and the regulations adopted or to be adopted thereunder, have the potential to impact substantially the way that employers provide health insurance to employees and the health insurance market for the small and midsized businesses that comprise ADP TotalSource's clients and prospects. We are unable to determine the ultimate impact that health care reform will have on our PEO business and our ability to attract and retain PEO clients. Amendments to money transmitter statutes have required us to receive licenses in some jurisdictions, and the adoption of new money transmitter statutes in other jurisdictions, as well as changes in the interpretation of existing statutes, in the future could require additional registration or licensing, as well as possible changes to the manner in which we conduct some aspects of our money movement business or our client funds investment strategy.

Our businesses host, collect, use and store personal information about our clients and employees of our clients, and a security or privacy breach may damage or disrupt our businesses, result in the disclosure of confidential information, damage our reputation, increase our costs and cause losses

A number of our businesses host, collect, use and store large amounts of personal information about our clients and employees of our clients, including payroll information, healthcare information, personal and business financial data, social security numbers, bank account numbers, tax information and other sensitive personal and business information. In addition, we collect and maintain personal information of our employees in the ordinary course of our business. We are focused on ensuring our operating environments safeguard and protect personal and business information, and although we believe that we maintain a robust program of information security and controls and none of the threats that we have encountered to date have materially impacted us, the impact of a breach could have a material adverse effect on our business, results of operations and financial condition.

We are also subject to various laws, rules and regulations relating to the collection, use and security of personal and business information. The future enactment of more restrictive laws, rules or regulations could have an adverse impact on us through increased costs or restrictions on our businesses. In addition, the possession and use of personal information and data in conducting our business subjects us to laws that may require notification to clients or employees of a privacy breach.

Globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication. Although this is a global problem, it may affect our businesses more than other businesses because malevolent third parties may focus on the amount and type of personal and business information that our businesses host, collect, use and store. Any cyber attack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service, corruption of data, or theft of non-public or other sensitive information, or similar act by a malevolent party could create financial liability, regulatory sanction, or a loss of confidence in our ability to serve clients or cause current or potential clients to choose another service provider. As these threats continue to evolve, we may be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate any security vulnerabilities. In addition, while our operating environment is designed to safeguard and protect personal and business information, we do not have the ability to

monitor the implementation of similar safeguards by our clients, vendors or their respective employees, and, in any event, third parties may be able to circumvent those security measures.

Our systems may be subject to disruptions that could adversely affect our business and reputation

Many of our businesses are highly dependent on our ability to process, on a daily basis, a large number of complicated transactions. We rely heavily on our payroll, financial, accounting, and other data processing systems. If any of these systems fails to operate properly or becomes disabled even for a brief period of time, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention, or damage to our reputation. We have disaster recovery, business continuity, and crisis management plans and procedures designed to protect our businesses against a multitude of events including natural disasters, military or terrorist actions, power or communication failures, or similar events. Despite our preparations, our plans may not be successful in preventing the loss of client data, service interruptions, disruptions to our operations, or damage to our important facilities.

If we fail to adapt our technology to meet client needs and preferences, the demand for our services may diminish

Our businesses operate in industries that are subject to rapid technological advances and changing client needs and preferences. In order to remain competitive and responsive to client demands, we continually upgrade, enhance, and expand our existing solutions and services. If we fail to respond successfully to technology challenges, the demand for our services may diminish.

Political and economic factors may adversely affect our business and financial results

Trade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and volatility. When there is a slowdown in the economy, employment levels and interest rates may decrease with a corresponding impact on our businesses. Clients may react to worsening conditions by reducing their spending on payroll and other outsourcing services or renegotiating their contracts with us. In addition, a reduction in availability of financing during such conditions, even to borrowers with the highest credit ratings, may limit our access to short-term debt markets to meet liquidity needs required by our Employer Services business.

We invest our client funds in liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, our client fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated, individually or in unison, during periods of unusual financial market volatility.

We are dependent upon various large banks to execute Automated Clearing House and wire transfers as part of our client payroll and tax services. While we have contingency plans in place for bank failures, a systemic shutdown of the banking industry would impede our ability to process funds on behalf of our payroll and tax services clients and could have an adverse impact on our financial results and liquidity.

We derive a significant portion of our revenues and operating income outside of the United States and, as a result, we are exposed to market risk from changes in foreign currency exchange rates that could impact our consolidated results of operations, financial position or cash flows.

Change in our credit ratings could adversely impact our operations and lower our profitability

The major credit rating agencies periodically evaluate our creditworthiness and have given us very strong long-term debt and the highest commercial paper ratings. Failure to maintain high credit ratings on long-term and short-term debt could increase our cost of borrowing, reduce our ability to obtain intra-day borrowing required by our Employer Services business, and ultimately reduce our client interest revenue.

Our proposed spin-off of our Dealer Services business is subject to inherent risks

The proposed spin-off of our Dealer Services business is subject to inherent risks and uncertainties including, among others: risks that the spin-off will not be consummated; increased demands on our management team to accomplish the spin-off; and significant transaction costs and risks from changes in the results of operations of our reportable segments.

We may be unable to attract and retain qualified personnel

Our ability to grow and provide our clients with competitive services is partially dependent on our ability to attract and retain highly motivated people with the skills to serve our clients. Competition for skilled employees in the outsourcing and other markets in which we operate is intense and, if we are unable to attract and retain highly skilled and motivated personnel, results of our operations may suffer.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

ADP owns 12 of its processing/print centers, and 24 other operational offices, sales offices, and its corporate headquarters in Roseland, New Jersey, which aggregate approximately 3,705,397 square feet. None of ADP's owned facilities is subject to any material encumbrances. ADP leases space for some of its processing centers, other operational offices, and sales offices. All of these leases, which aggregate approximately 6,062,311 square feet in North America, Europe, South America, Asia, Australia and Africa, expire at various times up to the year 2024. ADP believes its facilities are currently adequate for their intended purposes and are adequately maintained.

Item 3. Legal Proceedings

In the normal course of business, ADP is subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, ADP believes that it has valid defenses with respect to the legal matters pending against it and that the ultimate resolution of these matters will not have a material adverse impact on its financial condition, results of operations, or cash flows.

Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant's Common Equity

The principal market for the Company's common stock is the NASDAQ Global Select Market under the symbol ADP. The following table sets forth the reported high and low sales prices of the Company's common stock reported on the NASDAQ Global Select Market and the cash dividends per share of common stock declared during each quarter for the two most recent fiscal years. As of June 30, 2014, there were 45,497 holders of record of the Company's common stock. As of such date, 509,052 additional holders held their common stock in “street name.”



	Price Per Share		Dividends
	High	Low	Per Share
Fiscal 2014 quarter ended

June 30	$80.37	$73.38	$0.480
March 31	$83.00	$71.91	$0.480
December 31	$83.82	$69.91	$0.480
September 30	$74.95	$68.75	$0.435

Fiscal 2013 quarter ended

June 30	$72.00	$63.30	$0.435
March 31	$65.12	$57.75	$0.435
December 31	$59.96	$54.02	$0.435
September 30	$59.50	$54.85	$0.395

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of the Publicly Announced Common Stock Repurchase Plan (2)	Maximum Number of Shares that may yet be Purchased under the Common Stock Repurchase Plan (2) (3)
April 1, 2014 to April 30, 2014	180	$77.37	—	18,351,660
May 1, 2014 to May 31, 2014	1,402,889	$78.19	1,400,000	16,951,660
June 1, 2014 to June 30, 2014	1,462,568	$79.00	1,462,052	15,489,608
Total	2,865,637		2,862,052



(1)		Pursuant to the terms of the Company's restricted stock program, the Company purchased 3,585 shares at the then market value of the shares in connection with the exercise by employees of their option under such program to satisfy certain tax withholding requirements through the delivery of shares to the Company instead of cash.

(2)		The Company received the Board of Directors' approval to repurchase shares of the Company's common stock as follows:



Date of Approval		Shares
March 2001		50 million
November 2002		35 million
November 2005		50 million
August 2006		50 million
August 2008		50 million
June 2011		35 million
August 2014		30 million

There is no expiration date for the common stock repurchase plan.



(3)		In August 2014, the Company received the Board of Directors' approval to repurchase an additional 30 million shares of the Company common stock. This additional authorization is not reflected in the table as it occurred subsequent to June 30, 2014.

Performance Graph

The following graph compares the cumulative return on the Company's common stock for the most recent five years with the cumulative return on the S&P 500 Index and a Peer Group Index, assuming an initial investment of $100 on June 30, 2009, with all dividends reinvested.

* The Peer Group Index is comprised of the following companies:



Insperity, Inc.		Paychex, Inc.
Computer Sciences Corporation		The Ultimate Software Group, Inc.
Global Payments Inc.		Total System Services, Inc.
Intuit Inc.		The Western Union Company

Item 6. Selected Financial Data

The following selected financial data is derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk included in this Annual Report on Form 10-K. Prior period amounts have been adjusted to exclude discontinued operations.



(Dollars and shares in millions, except per share amounts)
Years ended June 30,	2014			2013			2012			2011			2010

Total revenues	$	12,206.5		$	11,287.6		$	10,595.4		$	9,813.9		$	8,863.8
Total costs of revenues	$	7,221.4		$	6,638.5		$	6,203.9		$	5,698.6		$	4,991.0
Gross profit	$	4,985.1		$	4,649.1		$	4,391.5		$	4,115.3		$	3,872.8
Earnings from continuing operations before income taxes	$	2,274.6		$	2,076.1		$	2,101.7		$	1,912.1		$	1,850.2
Adjusted earnings from continuing operations before income taxes (Note 1)	$	2,289.5		$	2,118.8		$	2,035.7		$	1,912.1		$	1,850.2
Net earnings from continuing operations	$	1,502.6		$	1,358.1		$	1,375.2		$	1,241.0		$	1,198.6
Adjusted net earnings from continuing operations (Note 1)	$	1,517.5		$	1,400.8		$	1,334.0		$	1,241.0		$	1,186.4

Basic earnings per share from continuing operations	$	3.14		$	2.81		$	2.82		$	2.51		$	2.39
Diluted earnings per share from continuing operations	$	3.11		$	2.79		$	2.79		$	2.49		$	2.38
Adjusted diluted earnings per share from continuing operations (Note 1)	$	3.14		$	2.88		$	2.71		$	2.49		$	2.36
Basic weighted average shares outstanding	478.9			482.7			487.3			493.5			500.5
Diluted weighted average shares outstanding	483.1			487.1			492.2			498.3			503.7
Cash dividends declared per share	$	1.88		$	1.70		$	1.55		$	1.42		$	1.35
Return on equity ("ROE") from continuing operations (Note 2)	23.4		%	22.1		%	22.7		%	21.6		%	22.2		%

At year end:
Cash, cash equivalents and marketable securities	$	4,069.9		$	2,041.1		$	1,665.4		$	1,523.7		$	1,775.5
Total assets of continuing operations	$	32,051.7		$	32,251.4		$	30,673.6		$	34,088.4		$	26,709.5
Obligations under reverse repurchase agreements	$	—		$	245.9		$	—		$	—		$	—
Obligation under commercial paper borrowings	$	2,173.0		$	—		$	—		$	—		$	—
Long-term debt	$	11.5		$	14.7		$	16.8		$	34.2		$	39.8
Stockholders’ equity	$	6,670.2		$	6,189.9		$	6,114.0		$	6,010.4		$	5,478.9

Note 1. Non-GAAP Financial Measures

The following table reconciles results within our Selected Financial Data to adjusted results that exclude incremental costs incurred during the fiscal year ended June 30, 2014 ("fiscal 2014") that are directly attributable to the planned separation of our Dealer Services business, a goodwill impairment charge related to our ADP AdvancedMD business for the fiscal year ended June 30, 2013 ("fiscal 2013"), a gain on the sale of assets related to rights and obligations to resell a third-party expense management platform for the fiscal year ended June 30, 2012 ("fiscal 2012"), and certain favorable tax items for the fiscal year ended June 30, 2010. We use certain adjusted results, among other measures, to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by us and improves our ability to understand our operating performance. Since adjusted earnings from continuing operations before income taxes, adjusted net earnings from continuing operations, and adjusted diluted earnings per share (“EPS”) from continuing operations are not measures of performance calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), they should not be considered in isolation from, or as a substitute for, earnings from continuing operations before income taxes, net earnings from continuing operations, and diluted EPS from continuing operations, and they may not be comparable to similarly titled measures employed by other companies.



(Dollars in millions, except per share amounts)
Years ended June 30,	2014		2013		2012			2011		2010

Earnings from continuing operations before income taxes	$	2,274.6	$	2,076.1	$	2,101.7		$	1,912.1	$	1,850.2
Adjustments:
Separation costs	14.9		—		—			—		—
Goodwill impairment	—		42.7		—			—		—
Gain on sale of assets	—		—		(66.0		)	—		—
Adjusted earnings from continuing operations before income taxes	$	2,289.5	$	2,118.8	$	2,035.7		$	1,912.1	$	1,850.2

Net earnings from continuing operations	$	1,502.6	$	1,358.1	$	1,375.2		$	1,241.0	$	1,198.6
Adjustments:
Separation costs	14.9		—		—			—		—
Goodwill impairment	—		42.7		—			—		—
Gain on sale of assets	—		—		(41.2		)	—		—
Favorable tax items	—		—		—			—		(12.2		)
Adjusted net earnings from continuing operations	$	1,517.5	$	1,400.8	$	1,334.0		$	1,241.0	$	1,186.4

Diluted earnings per share from continuing operations	$	3.11	$	2.79	$	2.79		$	2.49	$	2.38
Adjustments:
Separation costs	0.03		—		—			—		—
Goodwill impairment	—		0.09		—			—		—
Gain on sale of assets	—		—		(0.08		)	—		—
Favorable tax items	—		—		—			—		(0.02		)
Adjusted diluted earnings per share from continuing operations	$	3.14	$	2.88	$	2.71		$	2.49	$	2.36

Note 2. Return on equity from continuing operations has been calculated as net earnings from continuing operations divided by average total stockholders' equity. Our ROE for fiscal 2014 includes incremental costs incurred that are directly attributable to the planned separation of our Dealer Services business which decreased ROE by 0.2%. Our ROE for fiscal 2013 includes the impact of a goodwill impairment charge which decreased ROE by 0.6%. Our ROE for fiscal 2012 includes the impact from the sale of assets related to rights and obligations to resell a third-party expense management platform which increased ROE by 0.6%. Our ROE for fiscal 2010 includes the impact from favorable tax items which increased ROE by 0.2%.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This report and other written or oral statements made from time to time by Automatic Data Processing, Inc. (“ADP”) may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, and which may be identified by the use of words like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could” and other words of similar meaning, are forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of services and products; changes in laws regulating payroll taxes, professional employer organizations and employee benefits; overall market and economic conditions, including interest rate and foreign currency trends; competitive conditions; auto sales and related industry changes; employment and wage levels; changes in technology; availability of skilled technical associates; and the impact of new acquisitions and divestitures. In addition, the proposed spin-off of the Dealer Services business is subject to inherent risks and uncertainties, including: risks that the spin-off will not be consummated; increased demands on our management team to accomplish the spin-off; significant transaction costs and risks from changes in results of operations of our reportable segments. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. These risks and uncertainties, along with the risk factors discussed under "Item 1A. Risk Factors," should be considered in evaluating any forward-looking statements contained herein.

EXECUTIVE OVERVIEW

On April 10, 2014, we announced that our Board of Directors approved a plan to separate our Dealer Services business into an independent publicly traded company through a tax-free spin-off of 100% of Dealer Services to ADP shareholders. We expect to receive at least $700 million in connection with the spin-off, which we plan to return to our shareholders after the spin-off through share repurchases, depending upon market conditions. Following the spin-off, we intend to increase the dividend annually, subject to Board of Director approval, keeping intact our 39-year track record of consecutive dividend increases. However, we expect to grow the dividend at a slower rate than earnings to allow us to return to our pre-separation target dividend payout ratio of 55% to 60% in about two years. We believe that the separation of the Dealer Services business will allow both companies to focus on their respective businesses, industries, and strategic opportunities and we will further direct our attention and resources to our mission and three strategic pillars discussed below. We expect to complete the separation by October 2014.

ADP's mission is to help organizations unlock their business potential with our insightful solutions. We seek to embrace new technology and innovation to deliver market leading products and services that meet the needs of our clients across all of our markets. Our commitment to service excellence lies at the core of our relationship with each of our clients, whether a small, midsized or large organization in one or multiple countries. Our business strategy is based on strategic pillars, which are predicated on our ability to drive innovation and service excellence, and attract, build, and retain the right talent to position ADP as the global market leader in human capital management (HCM) services. Our strategic pillars are to:


•	grow our integrated suite of cloud-based HCM, benefits, and payroll solutions to serve the U.S. market;


•	invest to grow and scale our HR Business Process Outsourcing solutions by leveraging our platforms and processes; and


•	leverage our global presence to offer clients HCM, benefits, and payroll solutions where they do business.

Our results during fiscal 2014 continue to reflect the strength of our underlying business model, including the diversity of our client base and products. Our focus on product innovation and improvements in salesforce productivity led to growth in new business bookings. We are pleased with the performance of our business segments, which have continued to drive good revenue growth and pretax margin expansion. Revenue retention improved across our business segments and we continue to benefit from the strength of our pays per control metric, which represents the number of employees on our clients' payrolls as measured on a same-store-sales basis utilizing a representative subset of payrolls ranging from small to large businesses that are reflective of a broad range of U.S. geographic regions. During fiscal 2014, we were impacted by the decline in high-margin client interest revenues as a result of lower interest rates, partially offset by an increase in our average client funds balance. We expect this high-margin client interest revenue to increase in the fiscal year ending June 30, 2015, but at a slower rate than our underlying processing revenue.

Consolidated revenues in fiscal 2014 increased 8%, to $12,206.5 million, as compared to fiscal 2013. Earnings from continuing operations before income taxes increased 10%, to $2,274.6 million, as compared to fiscal 2013 and net earnings from continuing operations increased 11%, to $1,502.6 million, as compared to fiscal 2013. Our diluted earnings per share from continuing operations increased 11% to $3.11 in fiscal 2014, as compared to $2.79 in fiscal 2013.

Our fiscal 2014 results include $14.9 million of incremental costs directly attributable to our planned separation of our Dealer Service business and our fiscal 2013 results include a $42.7 million non tax-deductible goodwill impairment charge related to our ADP AdvancedMD business. Excluding these items, our earnings from continuing operations before income taxes increased 8%, to $2,289.5 million, as compared to $2,118.8 million for fiscal 2013, and net earnings from continuing operations increased 8%, to $1,517.5 million, compared to $1,400.8 million for fiscal 2013. Our adjusted diluted earnings per share from continuing operations increased 9%, to $3.14 for fiscal 2014 from $2.88, as adjusted, for fiscal 2013, due to increased adjusted net earnings from continuing operations and fewer shares outstanding.

Our business segment results were solid with Employer Services' revenues increasing 8% to $8,535.2 million and earnings from continuing operations before income taxes increasing 14% to $2,517.8 million, PEO Services' revenues increasing 15% to $2,270.9 million and earnings from continuing operations before income taxes increasing 17% to $234.3 million, and Dealer Services' revenues increasing 7% to $1,951.4 million and earnings from continuing operations before income taxes increasing 14% to $428.1 million in fiscal 2014. Employer Services' and PEO Services' new business bookings, which represent annualized recurring revenues anticipated from sales orders to new and existing clients, grew 7% worldwide, to over $1.4 billion in fiscal 2014. Dealer Services' new business bookings showed strength as we continued to experience the effects of a stronger automotive industry and increased penetration of applications within our base. Our key business metrics continue to reflect the core strength of our business model, with our Employer Services' worldwide client revenue retention rate increasing to an all-time high of 91.4% and our pays per control metric increased 2.8% for the twelve months ended June 30, 2014 from the twelve months ended June 30, 2013.

Interest on funds held for clients decreased approximately 11%, or $47.2 million, to $373.7 million from $420.9 million in fiscal 2013. The decrease in the consolidated interest on funds held for clients resulted from the decrease in the average interest rate earned to 1.8% in fiscal 2014, as compared to 2.2% in fiscal 2013, partially offset by growth in average client funds balance of 8% resulting from the continued strength and growth of our Employer Services segment.

We invest our funds held for clients in accordance with ADP's prudent and conservative investment guidelines, where the safety of principal, liquidity, and diversification are the foremost objectives of our investment strategy. The portfolio is predominantly invested in AAA/AA rated fixed-income securities. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations.

Our financial condition and balance sheet remain solid at June 30, 2014, with cash and cash equivalents and marketable securities of $4.1 billion, of which $2.2 billion related to outstanding commercial paper borrowings. These borrowings were a normal part of our client funds extended investment strategy. Our net cash flows provided by operating activities were $1,821.4 million in fiscal 2014, as compared to $1,577.2 million in fiscal 2013. This increase in cash flows provided by operating activities from fiscal 2013 to fiscal 2014 was due to higher net earnings in fiscal 2014, favorable changes in timing differences on the net components of working capital, and lower pension contributions. The increase in cash provided by investing activities of $2,391.7 million is due to the timing of receipts and disbursements of restricted cash and cash equivalents held to satisfy client funds obligations, partially offset by the timing of purchases and sales of corporate and client fund marketable securities. The increase in cash used in financing activities of $2,509.2 million is primarily due to the timing of cash received from items such as proceeds from reverse repurchase agreements, proceeds from the issuance of commercial paper, and payments made related to client funds as compared to the prior year.

We have a strong business model with a high percentage of recurring revenues, excellent margins, the ability to generate consistent, healthy cash flows, strong client retention, and low capital expenditure requirements. We continue to enhance value to our shareholders, and in fiscal 2014 returned excess cash of $883.1 million through dividends and $667.3 million through our share buyback program. In the last five fiscal years, we have reduced the Company's common stock outstanding by approximately 4% through share buybacks, net of the effect of common stock issued under employee stock-based compensation programs. We have also raised the dividend payout per share for 39 consecutive years.

RESULTS OF OPERATIONS

ANALYSIS OF CONSOLIDATED OPERATIONS

Prior period amounts have been adjusted to exclude discontinued operations.

(Dollars in millions, except per share amounts)



	Years ended June 30,									$ Change						% Change
	2014			2013			2012			2014			2013			2014		2013

Total revenues	$	12,206.5		$	11,287.6		$	10,595.4		$	918.9		$	692.2		8	%	7	%

Costs of revenues:
Operating expenses	6,248.6			5,731.5			5,355.2			517.1			376.3			9	%	7	%
Systems development and programming costs	718.0			654.3			592.7			63.7			61.6			10	%	10	%
Depreciation and amortization	254.8			252.7			256.0			2.1			(3.3		)	1	%	(1	)%
Total costs of revenues	7,221.4			6,638.5			6,203.9			582.9			434.6			9	%	7	%

Selling, general and administrative costs	2,762.4			2,617.4			2,452.9			145.0			164.5			6	%	7	%
Separation costs	14.9			—			—			14.9			—			100	%	—	%
Goodwill impairment	—			42.7			—			(42.7		)	42.7			(100	)%	100	%
Interest expense	6.1			9.1			7.7			(3.0		)	1.4			(33	)%	18	%
Total expenses	10,004.8			9,307.7			8,664.5			697.1			643.2			7	%	7	%

Other income, net	(72.9		)	(96.2		)	(170.8		)	(23.3		)	(74.6		)	(24	)%	44	%

Earnings from continuing operations before income taxes	$	2,274.6		$	2,076.1		$	2,101.7		$	198.5		$	(25.6	)	10	%	(1	)%
Margin	18.6		%	18.4		%	19.8		%

Provision for income taxes	$	772.0		$	718.0		$	726.5		$	54.0		$	(8.5	)	8	%	(1	)%
Effective tax rate	33.9		%	34.6		%	34.6		%

Net earnings from continuing operations	$	1,502.6		$	1,358.1		$	1,375.2		$	144.5		$	(17.1	)	11	%	(1	)%

Diluted earnings per share from continuing operations	$	3.11		$	2.79		$	2.79		$	0.32		$	—		11	%	—	%

Note 1. Non-GAAP measures

The following table reconciles our results to adjusted results that exclude incremental costs incurred in fiscal 2014 directly attributable to our planned separation of our Dealer Services business, the fiscal 2013 non tax-deductible goodwill impairment charge, and the fiscal 2012 sale of assets related to rights and obligations to resell a third-party expense management platform.



	Years ended June 30,									$ Change					% Change
(Dollars in millions, except per share amounts)	2014			2013			2012			2014		2013			2014		2013

Earnings from continuing operations before income taxes	$	2,274.6		$	2,076.1		$	2,101.7		$	198.5	$	(25.6	)	10	%	(1	)%
Adjustments:
Separation costs	14.9			—			—
Goodwill impairment	—			42.7			—
Gain on sale of assets	—			—			(66.0		)
Adjusted earnings from continuing operations before income taxes	$	2,289.5		$	2,118.8		$	2,035.7		$	170.7	$	83.1		8	%	4	%

Provision for income taxes from continuing operations	$	772.0		$	718.0		$	726.5		$	54.0	$	(8.5	)	8	%	(1	)%
Effective tax rate	33.9		%	34.6		%	34.6		%
Adjustments:
Separation costs	—			—			—
Goodwill impairment	—			—			—
Gain on sale of assets	—			—			(24.8		)
Adjusted provision for income taxes from continuing operations	$	772.0		$	718.0		$	701.7		$	54.0	$	16.3		8	%	2	%
Adjusted effective tax rate	33.7		%	33.9		%	34.5		%

Net earnings from continuing operations	$	1,502.6		$	1,358.1		$	1,375.2		$	144.5	$	(17.1	)	11	%	(1	)%
Adjustments:
Separation costs	14.9			—			—
Goodwill impairment	—			42.7			—
Gain on sale of assets	—			—			(41.2		)
Adjusted net earnings from continuing operations	$	1,517.5		$	1,400.8		$	1,334.0		$	116.7	$	66.8		8	%	5	%

Diluted earnings per share from continuing operations	$	3.11		$	2.79		$	2.79		$	0.32	$	—		11	%	—	%
Adjustments:
Separation costs	0.03			—			—
Goodwill impairment	—			0.09			—
Gain on sale of assets	—			—			(0.08		)
Adjusted diluted earnings per share from continuing operations	$	3.14		$	2.88		$	2.71		$	0.26	$	0.17		9	%	6	%

Fiscal 2014 Compared to Fiscal 2013

Total Revenues

Total revenues increased $918.9 million, or 8%, to $12,206.5 million in fiscal 2014, as compared to fiscal 2013, due to an increase in revenues in Employer Services of 8%, or $610.3 million, to $8,535.2 million, an increase in revenues in PEO Services of 15%, or $297.7 million, to $2,270.9 million, and an increase in revenues in Dealer Services of 7%, or $131.2 million, to $1,951.4 million.

Total revenues in fiscal 2014 include interest on funds held for clients of $373.7 million, as compared to $420.9 million in fiscal 2013. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned to 1.8% in fiscal 2014, as compared to 2.2% in fiscal 2013, partially offset by an increase in our average client funds balance of 8%, to $20.7 billion, in fiscal 2014.

Total Expenses

Our total expenses increased $697.1 million, or 7%, to $10,004.8 million in fiscal 2014, as compared to fiscal 2013. The increase in our total expenses was due to an increase in operating expenses of $517.1 million, an increase in selling, general and administrative expenses of $145.0 million, an increase in systems development and programming costs of $63.7 million and separation costs related to the planned separation of our Dealer Services business of $14.9 million in fiscal 2014, partially offset by the goodwill impairment charge of $42.7 million in fiscal 2013. Total expenses would have increased approximately 8% without the impact of the 2014 separation costs related to the Dealer Services separation and the fiscal 2013 goodwill impairment charge.

Our total costs of revenues increased $582.9 million, or 9%, to $7,221.4 million in fiscal 2014, as compared to fiscal 2013, primarily due to an increase in operating expenses of $517.1 million and an increase in systems development and programming costs of $63.7 million.

Operating expenses increased $517.1 million, or 9% in fiscal 2014, as compared to fiscal 2013, due to the increase in revenues described above, including the increases in PEO Services, which has pass-through costs that are re-billable and which include costs for benefits coverage, workers’ compensation coverage and state unemployment taxes for worksite employees. These pass-through costs were $1,736.0 million for fiscal 2014, which included costs for benefits coverage of $1,383.3 million and costs for workers’ compensation and payment of state unemployment taxes of $352.7 million. These pass-through costs were $1,513.5 million for fiscal 2013, which included costs for benefits coverage of $1,193.2 million and costs for workers’ compensation and payment of state unemployment taxes of $320.3 million. The increase in operating expenses is also due to higher labor-related expenses in Employer Services of $65.9 million.

Systems development and programming costs increased $63.7 million, or 10%, in fiscal 2014, as compared to fiscal 2013, due to increased costs to develop, support, and maintain our products, partially offset by a higher proportion of capitalized costs of our strategic projects.

Selling, general and administrative expenses increased $145.0 million, or 6%, in fiscal 2014, as compared to fiscal 2013. The increase in expenses was related to an increase in selling expenses of $81.8 million resulting from investments in our salesforce and an increase in stock-based compensation expense of $29.7 million, and $17.9 million higher severance expenses in fiscal 2014, as compared to fiscal 2013.

Separation costs represent the incremental costs associated with our planned separation of Dealer Services and totaled $14.9 million for fiscal 2014. We expect to incur separation costs of between $40 million and $50 million during the fiscal year ending June 30, 2015 ("fiscal 2015").

Other Income, net



Years ended June 30,
(Dollars in millions)	2014			2013			$ Change

Interest income on corporate funds	$	(56.2	)	$	(64.5	)	$	(8.3	)
Realized gains on available-for-sale securities	(20.4		)	(32.1		)	(11.7		)
Realized losses on available-for-sale securities	3.9			3.5			(0.4		)
Gains on sales of buildings	—			(2.2		)	(2.2		)
Other, net	(0.2		)	(0.9		)	(0.7		)
Other income, net	$	(72.9	)	$	(96.2	)	$	(23.3	)

Other income, net, decreased $23.3 million in fiscal 2014, as compared to fiscal 2013. The decrease was due to a decrease in realized gains on available-for-sale securities of $11.7 million and a decrease in interest income on corporate funds of $8.3 million in the fiscal 2014, as compared to the fiscal 2013. The decrease in interest income on corporate funds resulted

from lower average interest rates of 1.5% in fiscal 2013 to 1.4% in fiscal 2014 and lower average daily corporate funds, which decreased from $4.2 billion in fiscal 2013 to $4.1 billion in fiscal 2014. In addition, we recognized gains of $2.2 million pertaining to the sale of two buildings during fiscal 2013.

Earnings from Continuing Operations before Income Taxes

Earnings from continuing operations before income taxes increased $198.5 million, or 10%, to $2,274.6 million in fiscal 2014, which includes the effect of the $14.9 million of separation costs directly attributable to the proposed separation of our Dealer Services business, compared to $2,076.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge. Overall margin increased approximately 20 basis points from 18.4% in fiscal 2013 to 18.6% in fiscal 2014. This increase was due to margin improvements in our business segments, partially offset by approximately 70 basis points of margin decline related to the continued decline in interest on funds held for clients discussed above and 30 basis points of margin decline due to increased stock-based compensation costs. Overall margin also benefited 20 basis points from the lower costs related to the incremental separation costs of $14.9 million included in fiscal 2014 compared to the $42.7 million charge related to the goodwill impairment in fiscal 2013.

Adjusted Earnings from Continuing Operations before Income Taxes

Adjusted earnings from continuing operations before income taxes increased $170.7 million, or 8%, to $2,289.5 million, in fiscal 2014, compared to $2,118.8 million for fiscal 2013, due to increased revenue and margin improvement in our business segments, partially offset by the continued decline in interest on funds held for clients. Margin, adjusted for the fiscal 2014 separation costs directly attributable to the proposed separation of our Dealer Services business and the fiscal 2013 goodwill impairment charge related to our ADP AdvancedMD business, remained flat at 18.8%. Margin improvements in our business segments were offset, primarily by approximately 70 basis points of margin decrease related to the continued decline in interest on fund held for clients discussed above and 30 basis of margin decline due to increased stock-based compensation costs.

Provision for Income Taxes

The effective tax rate in fiscal 2014 and 2013 was 33.9% and 34.6%, respectively. The effective tax rate in fiscal 2014 includes a 0.2 percentage point increase due to the non tax-deductible separation costs related to our planned separation of our Dealer Services business and the effective tax rate for fiscal 2013 includes a 0.7 percentage point increase due to the fiscal 2013 non tax-deductible goodwill impairment charge. The remaining decrease of 0 basis points is due to the resolution of certain tax matters and the reversal of a valuation allowance, partially offset by an increase in foreign taxes and reduced foreign tax credits available.

Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations

Net earnings from continuing operations increased $144.5 million, or 11%, to $1,502.6 million in fiscal 2014, compared to $1,358.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge. Diluted earnings per share from continuing operations increased 11% to $3.11 in fiscal 2014, as compared to $2.79 in fiscal 2013.

In fiscal 2014, our diluted earnings per share from continuing operations reflects the increase in net earnings from continuing operations and the impact of fewer shares outstanding resulting from the net impact of cumulative share repurchases, offset by the issuances of shares under our stock-based compensation programs.

Adjusted Net Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations

Adjusted net earnings from continuing operations increased $116.7 million, or 8%, to $1,517.5 million, in fiscal 2014, as compared to $1,400.8 million for fiscal 2013, and the adjusted diluted earnings per share from continuing operations increased 9%, to $3.14 for fiscal 2014, compared to $2.88, for fiscal 2013. The increase in adjusted diluted earnings per share from continuing operations for fiscal 2014 reflects the increase in adjusted net earnings from continuing operations and the impact of fewer shares outstanding resulting from the net impact of cumulative share repurchases, offset by the issuances of shares under our stock-based compensation programs.

Fiscal 2013 Compared to Fiscal 2012

Total Revenues

Our total revenues increased $692.2 million, or 7%, to $11,287.6 million in fiscal 2013, as compared to fiscal 2012, due to an increase in revenues in Employer Services of 6%, or $475.5 million, to $7,924.9 million, PEO Services of 11%, or $201.8 million, to $1,973.2 million, and Dealer Services of 9%, or $144.0 million, to $1,820.2 million. Total revenues would have increased approximately 6% without the impact of recently completed acquisitions and the impact to revenues pertaining to the sale in fiscal 2012 of assets related to rights and obligations to resell a third-party expense management platform. In addition, revenues decreased $61.3 million due to changes in foreign currency exchange rates.

Total revenues for fiscal 2013 include interest on funds held for clients of $420.9 million, as compared to $493.3 million in fiscal 2012. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned to 2.2% during fiscal 2013, as compared to 2.8% for fiscal 2012, partially offset by an increase in our average client funds balance of 7%, to $19.2 billion in fiscal 2013.

Total Expenses

Our total expenses increased $643.2 million, or 7%, to $9,307.7 million in fiscal 2013, as compared to fiscal 2012. The increase in our total expenses was due to an increase in operating expenses of $376.3 million, an increase in selling, general and administrative expenses of $164.5 million, and an increase in systems development and programming costs of $61.6 million. Total expenses would have increased approximately 6% without the impact of recently completed acquisitions.

Our total costs of revenues increased 7%, to $6,638.5 million in fiscal 2013, as compared to fiscal 2012 due to an increase in operating expenses of $376.3 million and an increase in systems development and programming costs of $61.6 million.

Operating expenses increased $376.3 million, or 7%, in fiscal 2013, as compared to fiscal 2012 due to the increase in revenues described above, including the increases in PEO Services, which has pass-through costs that are re-billable and which includes costs for benefits coverage, workers’ compensation coverage and state unemployment taxes for worksite employees. These pass-through costs were $1,513.5 million for fiscal 2013, which included costs for benefits coverage of $1,193.2 million and costs for workers’ compensation and payment of state unemployment taxes of $320.3 million. These pass-through costs were $1,363.6 million for fiscal 2012, which included costs for benefits coverage of $1,060.3 million and costs for workers’ compensation and payment of state unemployment taxes of $303.3 million. The increase in operating expenses is also due to expenses related to businesses acquired of $84.4 million and higher labor-related expenses in Employer Services of $69.4 million, partially offset by a decrease of $34.0 million due to changes in foreign currency exchange rates.

Systems development and programming costs increased $61.6 million, or 10%, in fiscal 2013, as compared to fiscal 2012, due to increased costs to develop, support, and maintain our products and increased costs related to businesses acquired of $6.6 million, partially offset by a decrease of $6.7 million due to changes in foreign currency exchange rates.

Selling, general and administrative expenses increased $164.5 million, or 7%, in fiscal 2013, as compared to fiscal 2012. The increase in expenses was related to an increase in selling expenses of $72.9 million resulting from investments in our salesforce and an increase in expenses of businesses acquired of $16.3 million, partially offset by a decrease of $24.6 million due to changes in foreign currency exchange rates. Additionally, selling, general, and administrative expenses decreased $24.1 million due to lower severance expenses in fiscal 2013, as compared to fiscal 2012.

Other Income, net



Years ended June 30,
(Dollars in millions)	2013			2012			$ Change

Interest income on corporate funds	$	(64.5	)	$	(85.2	)	$	(20.7	)
Realized gains on available-for-sale securities	(32.1		)	(32.1		)	—
Realized losses on available-for-sale securities	3.5			7.7			4.2
Impairment losses on available-for-sale securities	—			5.8			5.8
Impairment losses on assets held for sale	—			2.2			2.2
Gains on sales of buildings	(2.2		)	—			2.2
Gain on sale of assets	—			(66.0		)	(66.0		)
Other, net	(0.9		)	(3.2		)	(2.3		)
Other income, net	$	(96.2	)	$	(170.8	)	$	(74.6	)

Other income, net, decreased $74.6 million in fiscal 2013, as compared to fiscal 2012. The decrease was due to a $66.0 million gain on the sale of assets related to rights and obligations to resell a third-party expense management platform in fiscal 2012 and a decrease in interest income on corporate funds of $20.7 million in fiscal 2013, as compared to fiscal 2012. The decrease in interest income on corporate funds resulted from lower average interest rates from 2.1% in fiscal 2012 to 1.5% in fiscal 2013, partially offset by increasing average daily corporate funds, which increased from $4.0 billion in fiscal 2012 to $4.2 billion in fiscal 2013. Such decreases were partially offset by gains of $2.2 million pertaining to the sale of two buildings in fiscal 2013, a $5.8 million impairment loss on available-for-sale securities in fiscal 2012, and an impairment loss of $2.2 million related to assets previously classified as assets held for sale in fiscal 2012.

Earnings from Continuing Operations before Income Taxes

Earnings from continuing operations before income taxes decreased $25.6 million, or 1%, to $2,076.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge, compared to $2,101.7 million in fiscal 2012, which includes the effect of a $66.0 million gain on the sale of assets related to the rights and obligations to resell a third-party expense management platform. Overall margin decreased approximately 140 basis points from 19.8% in fiscal 2012 to 18.4% in fiscal 2013 with approximately 40 basis points of margin decrease attributable to the goodwill impairment charge, 20 basis points of margin decrease attributable to acquisitions completed in fiscal 2012, and 90 basis points related to the continued decline in interest on funds held for clients discussed above. In addition, overall margin decreased approximately 60 basis points due to the fiscal 2012 gain on the sale of assets related to the rights and obligations to resell a third-party management platform. These decreases were partially offset by margin improvements in our business segments.

Adjusted Earnings from Continuing Operations before Income Taxes

Adjusted earnings from continuing operations before income taxes increased $83.1 million, or 4%, to $2,118.8 million in fiscal 2013, as compared to $2,035.7 million for fiscal 2012 due to increased revenue and margin improvement in our business segments, partially offset by the continued decline in interest on funds held for clients. Margin, adjusted for the 2013 goodwill impairment charge related to our ADP AdvancedMD business and a gain on the sale of assets related to rights and obligations to resell a third-party expense management platform in fiscal 2012, decreased approximately 40 basis points from 19.2% in fiscal 2012 to 18.8% in fiscal 2013 due to approximately 90 basis points of margin decline related to the continued decline in interest on funds held for clients discussed above, partially offset by margin improvements in our business segments.

Provision for Income Taxes

The effective tax rates in both fiscal 2013 and 2012 were 34.6%. Our effective tax rate for fiscal 2013 includes the effect of a non tax-deductible goodwill impairment charge of $42.7 million that increased our effective tax rate by 0.7 percentage points in the period. The 0.7 percentage point increase was offset by a reduction in foreign taxes and the availability of higher foreign tax credits in fiscal 2013, as compared to 2012.

Net Earnings from Continuing Operations and Diluted Earnings per Share from Continuing Operations

Net earnings from continuing operations decreased $17.1 million, or 1%, to $1,358.1 million in fiscal 2013, which includes the effect of the $42.7 million goodwill impairment charge, compared to $1,375.2 million in fiscal 2012, which included the effect of an after tax gain on the sale of assets of $41.2 million. Diluted earnings per share from continuing operations was flat in fiscal 2013, as compared to $2.79 in fiscal 2012.

In fiscal 2013, our diluted earnings per share from continuing operations reflects the decrease in net earnings from continuing operations and the impact of fewer shares outstanding resulting from the net impact of cumulative share repurchases, offset by the issuances of shares under our stock-based compensation programs.

Adjusted Net Earnings from Continuing Operations and Adjusted Diluted Earnings per Share from Continuing Operations

Adjusted net earnings from continuing operations increased $66.8 million, or 5%, to $1,400.8 million, in fiscal 2013, as compared to $1,334.0 million for fiscal 2012, and the adjusted diluted earnings per share from continuing operations increased 6%, to $2.88 for fiscal 2013, compared to $2.71 for fiscal 2012. The increase in adjusted diluted earnings per share from continuing operations for fiscal 2013 reflects the increase in adjusted net earnings from continuing operations and the impact of fewer shares outstanding resulting from the net impact of cumulative share repurchases, offset by the issuances of shares under our stock-based compensation programs.

ANALYSIS OF REPORTABLE SEGMENTS

Revenues from Continuing Operations

(Dollars in millions)



	Years ended June 30,									$ Change				% Change
	2014			2013			2012			2014		2013		2014		2013
Employer Services	$	8,535.2		$	7,924.9		$	7,449.4		$	610.3	$	475.5	8	%	6	%
PEO Services	2,270.9			1,973.2			1,771.4			297.7		201.8		15	%	11	%
Dealer Services	1,951.4			1,820.2			1,676.2			131.2		144.0		7	%	9	%
Other	(0.9		)	1.7			5.5
Reconciling items:
Client fund interest	(550.1		)	(432.4		)	(307.1		)
	$	12,206.5		$	11,287.6		$	10,595.4		$	918.9	$	692.2	8	%	7	%

Earnings from Continuing Operations before Income Taxes

(Dollars in millions)



	Years ended June 30,									$ Change					% Change
	2014			2013			2012			2014		2013			2014		2013
Employer Services	$	2,517.8		$	2,216.8		$	2,054.6		$	301.0	$	162.2		14	%	8	%
PEO Services	234.3			199.7			171.1			34.6		28.6			17	%	17	%
Dealer Services	428.1			375.3			322.1			52.8		53.2			14	%	17	%
Other	(355.5		)	(283.3		)	(139.0		)
Reconciling items:
Client fund interest	(550.1		)	(432.4		)	(307.1		)
	$	2,274.6		$	2,076.1		$	2,101.7		$	198.5	$	(25.6	)	10	%	(1	)%

Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are charged to the reportable segments based on management’s responsibility for the applicable costs. 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 and the fiscal 2013 goodwill impairment charge.

In addition, there is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of 4.5%. 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 allocation is a reconciling item to our reportable segments’ revenues from continuing operations and earnings from continuing operations before income taxes and is eliminated in consolidation.

Employer Services

Fiscal 2014 Compared to Fiscal 2013

Revenues from continuing operations

Employer Services' revenues from continuing operations increased $610.3 million, or 8%, to $8,535.2 million in fiscal 2014, as compared to fiscal 2013. Revenues from continuing operations increased due to new business started during the year from new business bookings growth, an increase in the number of employees on our clients’ payrolls, and the impact of price increases. Our worldwide client revenue retention rate in fiscal 2014 increased approximately 10 basis points to 91.4% as compared to our rate in fiscal 2013 and our U.S. pays per control increased 2.8% in fiscal 2014.

Earnings from Continuing Operations before Income Taxes

Employer Services’ earnings from continuing operations before income taxes increased $301.0 million, or 14%, to $2,517.8 million in fiscal 2014, as compared to fiscal 2013. The increase was due to the increase in revenues from continuing operations of $610.3 million discussed above, which was partially offset by an increase in expenses of $309.3 million. Expenses increased in fiscal 2014 due to investments in our salesforce and labor-related costs as compared to 2013, both of which grew slower than Employer Services' revenues. Overall margin increased approximately 150 basis points from 28.0% to 29.5% for fiscal 2014, as compared to fiscal 2013, due to increased operating scale.

Fiscal 2013 Compared to Fiscal 2012

Revenues from continuing operations

Employer Services' revenues from continuing operations increased $475.5 million, or 6%, to $7,924.9 million in fiscal 2013, as compared to fiscal 2012. Revenues from continuing operations for our Employer Services business would have increased approximately 5% without the impact of acquisitions and revenues pertaining to the sale in fiscal 2012 of assets related to rights and obligations to resell a third-party expense management platform. Revenues from continuing operations increased due to new business started during the year from new business bookings growth, an increase in the number of employees on our clients’ payrolls, and the impact of price increases. Our worldwide client revenue retention rate in fiscal 2013 increased 40 basis points to 91.3% as compared to our rate in fiscal 2012 and U.S. our pays per control increased 2.8% in fiscal 2013.

Earnings from Continuing Operations before Income Taxes

Employer Services' earnings from continuing operations before income taxes increased $162.2 million, or 8%, to $2,216.8 million in fiscal 2013, as compared to fiscal 2012. The increase was due to the increase in revenues of $475.5 million discussed above, which was partially offset by an increase in expenses of $313.3 million. In addition to an increase in expenses related to increased revenues, expenses increased in fiscal 2013 due to investments in our salesforce and labor-related costs over the same period prior year levels coupled with the effects of acquisitions. Overall margin increased approximately 40 basis points from 27.6% to 28.0% for fiscal 2013, as compared to fiscal 2012, and included the benefit of increased operating scale, offset by approximately 50 basis points of margin decline attributable to acquisitions.

PEO Services

Fiscal 2014 Compared to Fiscal 2013

Revenues

PEO Services' revenues increased $297.7 million, or 15%, to $2,270.9 million for fiscal 2014, as compared to fiscal 2013. Such revenues include pass-through costs of $1,736.0 million for fiscal 2014 and $1,513.5 million for fiscal 2013 associated with benefits coverage, workers' compensation coverage, and state unemployment taxes for worksite employees. The increase in revenues was due to a 15% increase in the average number of worksite employees, resulting from an increase in the number of new clients and growth in our existing clients.

Earnings from Continuing Operations before Income Taxes

PEO Services’ earnings from continuing operations before income taxes increased $34.6 million, or 17%, to $234.3 million for fiscal 2014, as compared to fiscal 2013. Earnings from continuing operations before income taxes increased due to growth in earnings related to the increase in the average number of worksite employees. Overall margin increased approximately 20 basis points from 10.1% to 10.3% for fiscal 2014, as compared to fiscal 2013, due to lower direct product cost and operational efficiency, partially offset by higher selling expenses related to strong new business bookings.

Fiscal 2013 Compared to Fiscal 2012

Revenues

PEO Services' revenues increased $201.8 million, or 11%, to $1,973.2 million in fiscal 2013, as compared to fiscal 2012. Such revenues include pass-through costs of $1,513.5 million for fiscal 2013 and $1,363.6 million for fiscal 2012 associated with benefits coverage, workers' compensation coverage, and state unemployment taxes for worksite employees. The increase in revenues was due to a 9% increase in the average number of worksite employees, resulting from an increase in the number of new clients and growth in our existing clients.

Earnings from Continuing Operations before Income Taxes

PEO Services' earnings from continuing operations before income taxes increased $28.6 million, or 17%, to $199.7 million for fiscal 2013, as compared to fiscal 2012. Earnings from continuing operations before income taxes increased due to growth in earnings related to the increase in the average number of worksite employees. Overall margin increased approximately 40 basis points from 9.7% to 10.1% for fiscal 2013, as compared to fiscal 2012, resulting from slower growth in pass-through costs.

Dealer Services

Fiscal 2014 Compared to Fiscal 2013

Revenues

Dealer Services' revenues increased $131.2 million, or 7%, to $1,951.4 million for fiscal 2014, as compared to fiscal 2013. This increase is driven by new business installed, improved client retention, and digital advertising revenues.

Earnings from Continuing Operations before Income Taxes

Dealer Services' earnings from continuing operations before income taxes increased $52.8 million, or 14%, to $428.1 million for fiscal 2014, as compared to fiscal 2013. This increase was due to the increase in revenues of $131.2 million discussed above and was partially offset by higher operating expenses related to implementing and servicing new clients and products. Overall margin increased approximately 130 basis points from 20.6% to 21.9% for fiscal 2014, as compared to fiscal 2013, due to increased operating efficiencies and the benefits of non-recurring items.

Fiscal 2013 Compared to Fiscal 2012

Revenues

Dealer Services' revenues increased $144.0 million, or 9%, to $1,820.2 million for fiscal 2013, as compared to fiscal 2012. Revenues for our Dealer Services business would have increased approximately 8% without the impact of acquisitions due to new clients, improved client retention, and growth in our key products during fiscal 2013, as compared to fiscal 2012. Revenues increased due to new business started during the year from growth in new business bookings and increased users of our digital marketing solutions. We continue to see increased utilization of our credit report and vehicle registration transactions, consistent with the steady improvement of the North American new car market.

Earnings from Continuing Operations before Income Taxes

Dealer Services' earnings from continuing operations before income taxes increased $53.2 million, or 17%, to $375.3 million for fiscal 2013, as compared to fiscal 2012. This increase was due to the increase in revenues of $144.0 million discussed above and was partially offset by higher operating expenses related to implementing and servicing new clients and products. Overall margin increased approximately 140 basis points from 19.2% to 20.6% for fiscal 2013, as compared to fiscal 2012, due to increased operating scale and included approximately 10 basis points of margin improvement related to acquisitions completed in fiscal 2012.

Other

The primary components of the “Other” segment are the results of operations of ADP Indemnity, 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 our Dealer Services business, and the fiscal 2013 goodwill impairment charge.

Stock-based compensation expense was $138.4 million, $96.4 million, and $94.1 million in fiscal 2014, 2013, and 2012, respectively.

ADP Indemnity provides workers' compensation and employer's liability deductible reimbursement insurance protection for PEO Services worksite employees up to a $1 million per occurrence. PEO Services has secured specific per occurrence and aggregate stop loss insurance from a wholly-owned and regulated insurance carrier of AIG that covers all losses

in excess of the $1 million per occurrence and also any aggregate losses within the $1 million retention that collectively exceed a certain level in each policy year. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability for the PEO Services business. Premiums are charged to PEO Services to cover the claims expected to be incurred by the PEO Services' worksite employees. Changes in estimated ultimate incurred losses are recognized by ADP Indemnity. During fiscal 2014, ADP Indemnity paid a premium of $142.4 million to enter into a reinsurance arrangement with ACE American Insurance Company to cover substantially all losses incurred by ADP Indemnity for the fiscal 2014 policy year 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. ADP Indemnity paid a premium of $167.9 million in July 2014 to enter into a reinsurance agreement with ACE American Insurance Company to cover substantially all losses for the year ended 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.

Our net realized gains on the sale of available-for-sale securities, including impairment losses, were $16.5 million, $28.6 million, and $18.6 million in each of fiscal 2014, 2013, and 2012, respectively.

In fiscal 2013 we recorded a goodwill impairment charge of $42.7 million related to our ADP AdvancedMD business which is part of the Employer Services segment. There were no goodwill impairment charges in fiscal 2014 or 2012. In fiscal 2014, we incurred $14.9 million of costs related to our planned separation of our Dealer Services business.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2014, cash and marketable securities were $4,069.9 million, stockholders' equity was $6,670.2 million, and the ratio of long-term debt-to-equity was 0.2%. Working capital before funds held for clients and client funds obligations at June 30, 2014 was $1,630.8 million, as compared to $1,209.2 million at June 30, 2013. The increase in working capital was primarily due to a decrease in our obligations under reverse repurchase agreements, an increase in accounts receivables, net, and an increase in cash and cash equivalents. As a result of short-term commercial paper obligations outstanding as of June 30, 2014, we reclassified funds held for clients to short-term marketable securities and cash and cash equivalents, which did not impact our working capital before clients fund obligations at June 30, 2014.

In fiscal 2015, as a result of the planned separation of our Dealer Services business, we expect to receive a dividend of at least $700 million, which we plan to return to our shareholders after the spin-off through share repurchases, depending upon market conditions. Additionally, in the first quarter of fiscal 2015, we expect to monetize notes receivables related to our Dealer Services financing arrangements, which is expected to generate between $195 million and $205 million of cash.

Our principal sources of liquidity for operations are derived from cash generated through operations and through corporate cash and marketable securities on hand. We continued to generate positive cash flows from operations during fiscal 2014, and we held approximately $4.1 billion of cash and marketable securities at June 30, 2014, which included $2.2 billion of cash and cash equivalents related to our commercial paper borrowings. We have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S. and Canadian short-term reverse repurchase agreements to meet short-term funding requirements related to client funds obligations. Included in our cash and cash equivalents as of June 30, 2014 is $0.8 billion held by our foreign subsidiaries. Amounts held by foreign subsidiaries, if repatriated to the U.S., would generally be subject to foreign withholding and U.S. income taxes, adjusted for foreign tax credits. Our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the years ended 2014, 2013, and 2012, are summarized as follows:



	Years ended June 30,									$ Change
	2014			2013			2012			2014			2013
Cash provided by (used in):
Operating activities	$	1,821.4		$	1,577.2		$	1,910.2		$	244.2		$	(333.0	)
Investing activities	813.3			(1,578.4		)	3,243.6			2,391.7			(4,822.0		)
Financing activities	(2,358.2		)	151.0			(4,953.9		)	(2,509.2		)	5,104.9
Effect of exchange rate changes on cash and cash equivalents	8.0			1.2			(41.2		)	6.8			42.4
Net change in cash and cash equivalents	$	284.5		$	151.0		$	158.7		$	133.5		$	(7.7	)

Net cash flows provided by operating activities were $1,821.4 million for fiscal 2014, as compared to $1,577.2 million for fiscal 2013. The increase in net cash flows provided by operating activities was due to $110.1 million higher net earnings in fiscal 2014, a lower pension contribution of $50.6 million, and a favorable change in the remaining components of net working capital. For the year ended June 30, 2014, Other operating activities include a $49.9 million use of funds and financing activities include a $49.9 million source of funds for excess tax benefits related to stock-based compensation. For the year ended June 30, 2013, Other operating activities include a $16.2 million use of funds and financing activities include a $16.2 million source of funds for excess tax benefits related to stock-based compensation.

Net cash flows provided by investing activities were $813.3 million for fiscal 2014, as compared to net cash flows used in investing activities of $1,578.4 million for fiscal 2013. The net change in cash provided by investing activities is due to the timing of receipts and disbursements of restricted cash and cash equivalents held to satisfy client funds obligations of $2,698.8 million and a decrease in the purchases of corporate and client funds marketable securities of $1,487.7 million, partially offset by the a decrease in proceeds from sales and maturities of corporate and clients funds marketable securities of $1,579.1 million.

Net cash flows used in financing activities were $2,358.2 million for fiscal 2014 as compared to net cash flows provided by financing activities of $151.0 million for fiscal 2013. The net change in cash provided by financing activities is due to the net decrease in client funds obligations of $4,128.0 million as a result of the timing of cash received and payments made related to client funds and the timing of our borrowings and repayments of our reverse repurchase obligations, partially offset by the net increase in proceeds from commercial paper borrowings of $2,173.0 million.

We purchased approximately 9.0 million shares of our common stock at an average price per share of $75.06 during fiscal 2014 compared to purchases of 10.4 million shares at an average price per share of $61.89 during fiscal 2013. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. 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.

Our U.S. short-term funding requirements related to client funds are sometimes obtained through a short-term commercial paper program, which provides for the issuance of up to $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, we increased our U.S. short-term commercial paper program to provide for the issuance of up to $7.5 billion in aggregate maturity value. Our commercial paper program is rated A-1+ by Standard and Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. For fiscal 2014 and 2013, our average borrowings were $2.3 billion and $2.4 billion, respectively, at weighted average interest rate of 0.1% and 0.2%, respectively. The weighted average maturity of the Company’s commercial paper during fiscal 2014 approximated two days. We have successfully borrowed through the use of our commercial paper program on an as needed basis to meet short-term funding requirements related to client funds obligations. At June 30, 2014, we had $2.2 billion of commercial paper outstanding, which was subsequently repaid on July 1, 2014. At June 30, 2013, we had no outstanding obligations under our short-term commercial paper program.

Our 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. We have successfully borrowed through the use of reverse repurchase agreements on an as needed basis to meet short-term funding

requirements related to client funds obligations. At June 30, 2014, there were no outstanding obligations related to the reverse repurchase agreements. At June 30, 2013, we had $245.9 million of obligations outstanding related to reverse repurchase agreements, which were repaid on July 2, 2013. For fiscal 2014 and 2013, we 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, we have $3.25 billion available to us on a committed basis under these reverse repurchase agreements. We believe that we currently meet all conditions set forth in the committed reverse repurchase agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the $3.25 billion available to us under the committed reverse repurchase agreements.

We have a $2.25 billion, 364-day credit agreement with a group of lenders that matures in June 2015. In addition, we have a five-year $2.0 billion credit facility and a five-year $3.25 billion credit facility maturing in June 2018 and June 2019, respectively, each with 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. We had no borrowings through June 30, 2014 under the credit agreements. We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the $7.5 billion available to us under the revolving credit agreements.

Our investment portfolio does not contain any asset-backed securities with underlying collateral of subprime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, asset-backed commercial paper, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA rated senior tranches of fixed rate credit card, auto loan, rate reduction, and other asset-backed securities, secured predominately by prime collateral. All collateral on asset-backed securities is performing as expected. In addition, we own senior debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks. We do own mortgage-backed securities, which 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 Federal National Mortgage Association and Federal Home Loan Mortgage Corporation as to the timely payment of principal and interest. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations.

Capital expenditures for continuing operations in fiscal 2014 were $218.7 million, as compared to $174.8 million in fiscal 2013 and $146.2 million in fiscal 2012. The capital expenditures in fiscal 2014 related to our data center and other facility improvements made to support our operations. We expect capital expenditures in fiscal 2015 to be between $250 million and $275 million.

The following table provides a summary of our contractual obligations as of June 30, 2014:



(In millions)	Payments due by period
Contractual Obligations	Less than 1 year		1-3 years		3-5 years		More than 5 years		Unknown		Total

Debt Obligations (1)	$	2.3	$	5.1	$	6.9	$	—	$	—	$	14.3
Operating Lease and Software License Obligations (2)	$	209.9	$	235.2	$	83.0	$	32.6	$	—	$	560.7
Purchase Obligations (3)	$	379.7	$	268.4	$	132.3	$	—	$	—	$	780.4
Obligations related to Unrecognized Tax Benefits (4)	$	1.0	$	—	$	—	$	—	$	55.7	$	56.7
Other long-term liabilities reflected on our Consolidated Balance Sheets:
Compensation and Benefits (5)	$	5.4	$	191.6	$	100.4	$	265.0	$	80.0	$	642.4
Acquisition-related obligations (6)	$	0.3	$	—	$	—	$	—	$	—	$	0.3
Total	$	598.6	$	700.3	$	322.6	$	297.6	$	135.7	$	2,054.8


(1)	These amounts represent the principal repayments of our debt and are included on our Consolidated Balance Sheets. The estimated interest payments due by the corresponding period above are $0.5 million, $0.6 million, $0.1 million, and $0.0 million, respectively, which have been excluded.

(2)

Included in these amounts are various facilities and equipment leases and software license agreements. We enter into operating leases in the normal course of business relating to facilities and equipment, as well as the licensing of software. The majority of our lease agreements have fixed payment terms based on the passage of time. Certain facility and equipment leases require payment of maintenance and real estate taxes and contain escalation provisions based on future adjustments in price indices. Our future operating lease obligations could change if we exit certain contracts or if we enter into additional operating lease agreements.


(3)	Purchase obligations are comprised of a $167.9 million 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.


(4)	We made the determination that net cash payments expected to be paid within the next 12 months, related to unrecognized tax benefits of $56.7 million at June 30, 2014, are expected to be up to $1 million. We are unable to make reasonably reliable estimates as to the period beyond the next 12 months in which cash payments related to unrecognized tax benefits are expected to be paid.


(5)	Compensation and benefits primarily relates to amounts associated with our employee benefit plans and other compensation arrangements. These amounts exclude the estimated contributions to our defined benefit plans, which are expected to be