Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
 
FORM 10-Q
______________

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2019

OR

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From          to         
 
Commission File Number 1-5397
__________________________

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


The number of shares outstanding of the registrant’s common stock as of April 30, 2019 was 435,228,237.


Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
Statements of Consolidated Earnings
Three and nine months ended March 31, 2019 and 2018
 
 
 
 
Statements of Consolidated Comprehensive Income
Three and nine months ended March 31, 2019 and 2018
 
 
 
 
Consolidated Balance Sheets
At March 31, 2019 and June 30, 2018
 
 
 
 
Statements of Consolidated Cash Flows
Nine months ended March 31, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 5.
Other Information
 
 
 
 
 
 
 

2

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Earnings
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
 
*As Restated
 
 
*As Restated
REVENUES:
 
 
 
 
 
 
 
Revenues, other than interest on funds held
for clients and PEO revenues
$
2,546.9

 
$
2,495.2

 
$
7,084.7

 
$
6,764.5

Interest on funds held for clients
167.4

 
134.8

 
415.0

 
340.9

PEO revenues (A)
1,133.1

 
1,066.0

 
3,176.8

 
2,906.1

TOTAL REVENUES
3,847.4

 
3,696.0

 
10,676.5

 
10,011.5

 
 
 
 
 
 
 
 
EXPENSES:
 

 
 

 
 

 
 

Costs of revenues:
 

 
 

 
 

 
 

Operating expenses
1,874.5

 
1,845.2

 
5,370.4

 
5,185.0

Systems development and programming costs
160.1

 
163.9

 
474.2

 
481.5

Depreciation and amortization
77.2

 
70.2

 
221.5

 
202.1

TOTAL COSTS OF REVENUES
2,111.8

 
2,079.3

 
6,066.1

 
5,868.6

 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
750.4

 
750.1

 
2,209.4

 
2,149.0

Interest expense
21.7

 
18.6

 
96.2

 
74.1

TOTAL EXPENSES
2,883.9

 
2,848.0

 
8,371.7

 
8,091.7

 
 
 
 
 
 
 
 
Other income, net
(21.0
)
 
(27.2
)
 
(67.5
)
 
(107.9
)
 
 
 
 
 
 
 
 
EARNINGS BEFORE INCOME TAXES
984.5

 
875.2

 
2,372.3

 
2,027.7

 
 
 
 
 
 
 
 
Provision for income taxes
230.8

 
214.2

 
554.9

 
283.7

 
 
 
 
 
 
 
 
NET EARNINGS
$
753.7

 
$
661.0

 
$
1,817.4

 
$
1,744.0

 
 
 
 
 
 
 
 
BASIC EARNINGS PER SHARE
$
1.74

 
$
1.50

 
$
4.17

 
$
3.95

 
 
 
 
 
 
 
 
DILUTED EARNINGS PER SHARE
$
1.73

 
$
1.49

 
$
4.15

 
$
3.93

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
434.1

 
441.0

 
435.5

 
441.5

Diluted weighted average shares outstanding
436.6

 
443.4

 
438.1

 
444.1


*See Note 2 for a summary of adjustments.

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $10,798.3 million and $10,176.2 million for the three months ended March 31, 2019 and 2018, respectively, and $32,178.8 million and $29,547.0 million for the nine months ended March 31, 2019 and 2018, respectively.












See notes to the Consolidated Financial Statements.

3


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

 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
 
*As Restated
 
 
*As Restated
Net earnings
$
753.7

 
$
661.0

 
$
1,817.4

 
$
1,744.0

 
 
 
 
 
 
 
 
Other comprehensive income/loss:
 
 
 
 
 
 
 
Currency translation adjustments
(2.3
)
 
26.8

 
(49.9
)
 
81.8

 
 
 
 
 
 
 
 
Unrealized net gains/(losses) on available-for-sale securities
259.0

 
(240.4
)
 
377.0

 
(400.6
)
Tax effect
(58.0
)
 
53.4

 
(84.8
)
 
109.9

Reclassification of net (gain)/losses on available-for-sale securities to net earnings
(0.1
)
 
0.2

 
1.4

 
1.3

Tax effect
—

 
0.1

 
(0.2
)
 
(0.2
)
 
 
 
 
 
 
 
 
Reclassification of pension liability adjustment to net earnings
6.1

 
2.3

 
32.5

 
6.9

Tax effect
(1.6
)
 
(0.6
)
 
(8.1
)
 
(2.3
)
 
 
 
 
 
 
 
 
Other comprehensive income/(loss), net of tax
203.1

 
(158.2
)
 
267.9

 
(203.2
)
Comprehensive income
$
956.8

 
$
502.8

 
$
2,085.3

 
$
1,540.8



*See Note 2 for a summary of adjustments.




























See notes to the Consolidated Financial Statements.

4

Automatic Data Processing, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
 
March 31,
 
June 30,
 
 
 
2018
 
 
2019
 
*As Restated
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,826.2

 
$
2,170.0

Accounts receivable, net of allowance for doubtful accounts of $50.8 and $51.3, respectively
 
2,485.2

 
1,984.2

Other current assets
 
534.4

 
531.3

Total current assets before funds held for clients
 
4,845.8

 
4,685.5

Funds held for clients
 
36,078.2

 
27,137.8

Total current assets
 
40,924.0

 
31,823.3

Long-term receivables, net of allowance for doubtful accounts of $0.5 and $0.5, respectively
 
25.6

 
25.5

Property, plant and equipment, net
 
765.8

 
793.7

Deferred contract costs
 
2,361.6

 
2,377.4

Other assets
 
740.3

 
699.3

Goodwill
 
2,316.1

 
2,243.5

Intangible assets, net
 
1,062.9

 
886.4

Total assets
 
$
48,196.3

 
$
38,849.1

 
 
 
 
 
Liabilities and Stockholders' Equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
156.3

 
$
135.4

Accrued expenses and other current liabilities
 
1,678.7

 
1,547.6

Accrued payroll and payroll-related expenses
 
607.4

 
667.7

Dividends payable
 
340.0

 
298.9

Short-term deferred revenues
 
228.3

 
225.7

Income taxes payable
 
99.7

 
43.9

Total current liabilities before client funds obligations
 
3,110.4

 
2,919.2

Client funds obligations
 
36,055.6

 
27,493.5

Total current liabilities
 
39,166.0

 
30,412.7

Long-term debt
 
2,002.3

 
2,002.4

Other liabilities
 
759.8

 
728.0

Deferred income taxes
 
615.8

 
522.0

Long-term deferred revenues
 
406.2

 
448.1

Total liabilities
 
42,950.1

 
34,113.2

 
 
 
 
 
Commitments and contingencies (Note 14)
 


 


 
 
 
 
 
Stockholders' equity:
 
 

 
 

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

 
—

Common stock, $0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at March 31, 2019 and June 30, 2018;
outstanding, 435.5 and 438.8 shares at March 31, 2019 and June 30, 2018, respectively
 
63.9

 
63.9

Capital in excess of par value
 
1,140.2

 
1,014.8

Retained earnings
 
17,368.6

 
16,546.6

Treasury stock - at cost: 203.2 and 199.9 shares at March 31, 2019 and June 30, 2018, respectively
 
(12,914.6
)
 
(12,209.6
)
Accumulated other comprehensive loss
 
(411.9
)
 
(679.8
)
Total stockholders’ equity
 
5,246.2

 
4,735.9

Total liabilities and stockholders’ equity
 
$
48,196.3

 
$
38,849.1


*See Note 2 for a summary of adjustments.



See notes to the Consolidated Financial Statements.

5
Automatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Cash Flows
(In millions)
(Unaudited)



 
 
Nine Months Ended
 
 
March 31,
 
 
2019
 
2018
 
 
 
*As Restated
Cash Flows from Operating Activities:
 
 
 
 
Net earnings
 
$
1,817.4

 
$
1,744.0

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

 
 

Depreciation and amortization
 
299.6

 
278.3

Amortization of deferred contract costs
 
655.2

 
623.5

Deferred income taxes
 
4.1

 
(145.5
)
Stock-based compensation expense
 
122.2

 
119.4

Net pension expense
 
41.0

 
8.2

Net amortization of premiums and accretion of discounts on available-for-sale securities
 
38.9

 
55.6

Impairment of intangible assets
 
12.1

 
—

Other
 
21.2

 
22.0

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

 
 

Increase in accounts receivable
 
(526.7
)
 
(239.3
)
Increase in other assets
 
(748.9
)
 
(696.1
)
Increase / (decrease) in accounts payable
 
25.4

 
(31.1
)
Increase in accrued expenses and other liabilities
 
194.5

 
71.0

Net cash flows provided by operating activities
 
1,956.0

 
1,810.0

 
 
 
 
 
Cash Flows from Investing Activities:
 
 

 
 

Purchases of corporate and client funds marketable securities
 
(2,725.8
)
 
(3,692.7
)
Proceeds from the sales and maturities of corporate and client funds marketable securities
 
2,090.6

 
2,702.5

Capital expenditures
 
(120.3
)
 
(159.6
)
Additions to intangibles
 
(329.9
)
 
(195.8
)
Acquisitions of businesses, net of cash acquired
 
(120.4
)
 
(612.4
)
Proceeds from the sale of property, plant, and equipment
 
7.9

 
—

Net cash flows used in investing activities
 
(1,197.9
)
 
(1,958.0
)
 
 
 
 
 
Cash Flows from Financing Activities:
 
 

 
 

Net increase in client funds obligations
 
8,612.0

 
6,700.2

Payments of debt
 
(1.6
)
 
(6.8
)
Repurchases of common stock
 
(760.6
)
 
(596.2
)
Net proceeds from stock purchase plan and stock-based compensation plans
 
50.5

 
46.1

Dividends paid
 
(949.6
)
 
(785.1
)
Other
 
(5.3
)
 
—

Net cash flows provided by financing activities
 
6,945.4

 
5,358.2

 
 
 
 
 
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
 
(34.1
)
 
53.1

 
 
 
 
 
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents
 
7,669.4

 
5,263.3

 
 
 
 
 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period
 
6,542.1

 
8,181.6

Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period
 
$
14,211.5

 
$
13,444.9

 
 
 
 
 
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
 
 
 
 
Cash and cash equivalents
 
$
1,826.2

 
$
2,293.6

Restricted cash and restricted cash equivalents included in funds held for clients (A)
 
12,385.3

 
11,151.3

Total cash, cash equivalents, restricted cash, and restricted cash equivalents
 
$
14,211.5

 
$
13,444.9

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest
 
$
108.6

 
$
86.5

Cash paid for income taxes, net of income tax refunds
 
$
437.7

 
$
423.0


*See Note 2 for a summary of adjustments.

(A) See Note 8 for a reconciliation of restricted cash and restricted cash equivalents in funds held for clients on the Consolidated Balance Sheets.


See notes to the Consolidated Financial Statements.

6

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

The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc., its subsidiaries and variable interest entity (“ADP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).  The Consolidated Financial Statements and footnotes thereto are unaudited.  In the opinion of the Company’s management, the Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of the Company’s interim financial results.

The Company has a grantor trust, which holds the majority of the funds provided by its clients pending remittance to employees of those clients, tax authorities, and other payees.  The Company is the sole beneficial owner of the trust.  The trust meets the criteria in Accounting Standards Codification (“ASC”) 810, “Consolidation” to be characterized as a variable interest entity (“VIE”).  The Company has determined that it has a controlling financial interest in the trust because it has both (1) the power to direct the activities that most significantly impact the economic performance of the trust (including the power to make all investment decisions for the trust) and (2) the right to receive benefits that could potentially be significant to the trust (in the form of investment returns) and, therefore, consolidates the trust.  Further information on these funds and the Company’s obligations to remit to its clients’ employees, tax authorities, and other payees is provided in Note 8, “Corporate Investments and Funds Held for Clients.” 

Restatements

Effective July 1, 2018, certain prior period amounts have been restated to conform to the current period presentation in connection with the adoption of Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (ASC 606)” and ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost.” Also, in the first quarter of the fiscal year ending June 30, 2019 (“fiscal 2019”), the Company's chief operating decision maker (“CODM”) began reviewing segment results reported at actual interest rates and the results of the PEO segment inclusive of the results of ADP Indemnity. Additionally, the CODM reviews results with changes to certain corporate allocations. Refer to Note 2 and Note 17 for additional information.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, expenses, and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. Interim financial results are not necessarily indicative of financial results for a full year.  The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (“fiscal 2018”).

Note 2.  New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective July 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)” on a retrospective basis. ASU 2014-09 requires an entity to recognize revenue depicting the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 resulted in enhanced revenue-related disclosures. The standard primarily impacted the manner in which it treats certain costs to fulfill contracts (i.e., implementation costs) and costs to acquire new contracts (i.e., selling costs). The provisions of the new standard require the Company to capitalize and amortize additional implementation costs than those capitalized and amortized under previous U.S. GAAP. Under previous U.S. GAAP, the Company immediately expensed all selling expenses. The adoption of the provisions of the new standard did not materially impact the timing or amount of revenue the Company recognized and did not result in significant changes in its business processes or systems. Refer to Note 3 for further details. Refer to the table below for a summary of the restatements required, as a result of this change, on the Company's statements of consolidated earnings for the three and nine months ended March 31, 2018, consolidated balance sheets as of June 30, 2018, and consolidated cash flows for the nine months ended March 31, 2018.
Effective July 1, 2018, the Company adopted ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost.” ASU 2017-07 requires reporting the service cost component in the same line item or items as other compensation costs arising during the period in the Statements of

7

Consolidated Earnings. The other components of net periodic pension cost are required to be presented in the Statements of Consolidated Earnings separately from the service cost component. The Company retrospectively adopted the new standard, and as a result reclassified the non-service cost components of the net periodic benefit cost from within the respective line items of our Statements of Consolidated Earnings to Other income, net. Refer to the table below for a summary of the reclassification required, as a result of this change, on the Company's consolidated results of operations for the three and nine months ended March 31, 2018. The adoption of the new accounting rules only impacted the classification of expenses on the Statements of Consolidated Earnings and did not impact the Company’s consolidated earnings, balance sheets, or cash flows.
Adoption of ASC 606 and ASU 2017-07 impacted the Company's prior period Statements of Consolidated Earnings, Consolidated Balance Sheets, and Consolidated Cash Flows as follows:

Statements of Consolidated Earnings
 
Three Months Ended
 
March 31, 2018
 
As reported
 
Adjustments
ASC 606
 
Adjustments
ASU 2017-07
 
As restated
Revenues, other than interest on funds held for clients and PEO revenues
$
2,492.9

 
$
2.3

 
$
—

 
$
2,495.2

Interest on funds held for clients
134.8

 
—

 
—

 
134.8

PEO revenues
1,065.3

 
0.7

 
—

 
1,066.0

TOTAL REVENUES
3,693.0

 
3.0

 
—

 
3,696.0

Operating expenses
1,844.7

 
(8.8
)
 
9.3

 
1,845.2

Systems development and programming costs
162.5

 
—

 
1.4

 
163.9

Depreciation and amortization
70.2

 
—

 
—

 
70.2

Selling, general, and administrative expenses
755.1

 
(10.8
)
 
5.8

 
750.1

Interest expense
18.6

 
—

 
—

 
18.6

Total Expenses
2,851.1

 
(19.6
)
 
16.5

 
2,848.0

Other income, net
(10.7
)
 
—

 
(16.5
)
 
(27.2
)
EARNINGS BEFORE INCOME TAXES
852.6

 
22.6

 
—

 
875.2

Provision for income taxes
209.5

 
4.7

 
—

 
214.2

NET EARNINGS
$
643.1

 
$
17.9

 
$
—

 
$
661.0


 
Nine Months Ended
 
March 31, 2018
 
As reported
 
Adjustments
ASC 606
 
Adjustments
ASU 2017-07
 
As restated
Revenues, other than interest on funds held for clients and PEO revenues
$
6,762.7

 
$
1.8

 
$
—

 
$
6,764.5

Interest on funds held for clients
340.9

 
—

 
—

 
340.9

PEO revenues
2,903.6

 
2.5

 
—

 
2,906.1

TOTAL REVENUES
10,007.2

 
4.3

 
—

 
10,011.5

Operating expenses
5,210.6

 
(53.6
)
 
28.0

 
5,185.0

Systems development and programming costs
477.6

 
—

 
3.9

 
481.5

Depreciation and amortization
202.1

 
—

 
—

 
202.1

Selling, general, and administrative expenses
2,134.8

 
(3.3
)
 
17.5

 
2,149.0

Interest expense
74.1

 
—

 
—

 
74.1

Total Expenses
8,099.2

 
(56.9
)
 
49.4

 
8,091.7

Other income, net
(58.5
)
 
—

 
(49.4
)
 
(107.9
)
EARNINGS BEFORE INCOME TAXES
1,966.5

 
61.2

 
—

 
2,027.7

Provision / (benefit) for income taxes
454.4

 
(170.7
)
 
—

 
283.7

NET EARNINGS
$
1,512.1

 
$
231.9

 
$
—

 
$
1,744.0



8

Consolidated Balance Sheets
 
 
June 30,
 
 
 
June 30,
 
 
2018
 
Adjustments
ASC 606
 
2018
 
 
As reported
 
 
As restated
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Other current assets
 
$
758.0

 
$
(226.7
)
 
$
531.3

Total current assets
 
32,050.0

 
(226.7
)
 
31,823.3

Deferred contract costs
 
—

 
2,377.4

 
2,377.4

Other assets
 
1,089.6

 
(390.3
)
 
699.3

Total assets
 
$
37,088.7

 
$
1,760.4

 
$
38,849.1

 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 

 
 

 
 

Current liabilities:
 
 

 
 

 
 

Short-term deferred revenues
 
226.5

 
(0.8
)
 
225.7

Total current liabilities
 
30,413.6

 
(0.8
)
 
30,412.7

Deferred income taxes
 
107.3

 
414.7

 
522.0

Long-term deferred revenues
 
377.8

 
70.2

 
448.1

Total liabilities
 
33,629.1

 
484.1

 
34,113.2

 
 
 
 
 
 
 
Stockholders' equity:
 
 

 
 

 
 

Retained earnings
 
15,271.3

 
1,275.3

 
16,546.6

Total stockholders’ equity
 
3,459.6

 
1,276.3

 
4,735.9

Total liabilities and stockholders’ equity
 
$
37,088.7

 
$
1,760.4

 
$
38,849.1


Statements of Consolidated Cash Flows
 
 
Nine Months Ended
 
 
March 31,
 
 
2018
 
Adjustments
ASC 606
 
2018
 
 
As reported
 
 
As restated
Cash Flows from Operating Activities:
 
 
 
 
 
 
Net earnings
 
$
1,512.1

 
$
231.9

 
$
1,744.0

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

 
 

 
 

Amortization of deferred contract costs
 
—

 
623.5

 
623.5

Deferred income taxes
 
18.0

 
(163.5
)
 
(145.5
)
Changes in operating assets and liabilities, net of effects from acquisitions:
 
 

 
 

 
 

Increase in other assets
 
(38.6
)
 
(657.5
)
 
(696.1
)
Increase in accrued expenses and other liabilities
 
105.4

 
(34.4
)
 
71.0

Net cash flows provided by operating activities
 
$
1,810.0

 
$
—

 
$
1,810.0

Effective October 1, 2018, the Company prospectively adopted ASU 2018-15, “Intangibles - Goodwill and Other-Internal-Use Software.” ASU 2018-15 clarifies and aligns the accounting and capitalization of implementation costs in cloud computing arrangements that are service arrangements with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40. The adoption of ASU 2018-15 did not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.

In March 2018, the Company adopted ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) from accumulated other comprehensive income to retained earnings. The Consolidated Balance Sheets reflect the reclassification out of accumulated other comprehensive income and into retained earnings of $42.3 million. The Company's policy for releasing disproportionate income tax effects from AOCI utilizes the aggregate approach. Refer to Note 16 for additional detail regarding the components of the reclassification. The adoption of ASU 2018-02 did not have an impact on the Company's consolidated results of operations or cash flows.

9



Recently Issued Accounting Pronouncements

The following table summarizes recent ASU's issued by the Financial Accounting Standards Board ("FASB") that could have a material impact on the Company's consolidated results of operations, financial condition, or cash flows.
Standard
Description
Effective Date
Effect on Financial Statements or Other Significant Matters
ASU 2018-14 Compensation-Retirement Benefits-Defined Benefit Plans
This update modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. 
July 1, 2021 (“Fiscal 2022”)
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
ASU 2018-13 Fair Value Measurement
This update modifies the disclosure requirements on fair value measurements. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis.
July 1, 2020 (“Fiscal 2021”)
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
ASU 2018-09 Codification Improvements
This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. The transition guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective immediately. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018.
The transition and effective date guidance is based on the facts and circumstances of each amendment.
Clarifications which were effective immediately were not applicable and for other amendments the Company determined the impact of this ASU did not have a material impact on its consolidated results of operations, financial condition, or cash flows.

10

 
Standard
Description
Effective Date
Effect on Financial Statements or Other Significant Matters
 
ASU 2016-02
Leases (Topic 842)
This update amends the existing accounting standards for lease accounting and requires lessees to recognize most lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. In July 2018, the FASB issued Accounting Standards Update 2018-10-Codification Improvements to Topic 842 (Leases), and Accounting Standards Update 2018-11-Leases (Topic 842)-Targeted Improvements, which (i) narrows amendments to clarify how to apply certain aspects of the new lease standard, (ii) provides entities with an additional transition method to adopt the new standard, and (iii) provides lessors with a practical expedient for separating components of a contract. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) to be more general and/or to correct unintended application of guidance.
July 1, 2019 (“Fiscal 2020”)
The Company has been assessing the impacts of the new standard. The Company anticipates using the optional transition method with a cumulative adjustment to retained earnings. The Company has reached a decision as to the systems it will use to manage the accounting for leases, determined the contracts that are considered leases under the new guidance and is currently in the process of implementing the systems and establishing the appropriate controls and procedures. The Company will utilize the transition package of practical expedients permitted within the new guidance which, among other things, will allow the Company to carry forward the historical lease classification.

Upon adoption, the Company anticipates a material impact to its Consolidated Balance Sheets but expects no impact to the Statements of Consolidated Earnings or Statements of Consolidated Cash Flows. The most significant impact will be the recognition of the right-of-use (“ROU”) assets and lease liabilities for operating leases. We estimate the adoption of the guidance will result in the recognition and presentation of total operating lease ROU assets to be approximately $600 million to $700 million and total operating lease liabilities to be approximately $500 million to $600 million, upon the adoption date.
 
 

Note 3.  Revenue

Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic pillars: U.S. Integrated HCM (“HCM”), HR Outsourcing (“HRO”), and Global with separate disaggregation for PEO benefits pass-through revenues and Client Fund Interest revenues.  The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

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

HRO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment insurance, among other human resources functions. This revenue is primarily driven by the Professional Employer Organization Services (“PEO”). Amounts collected from PEO worksite employers include payroll, fees for benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment taxes. The payroll and payroll taxes collected from the worksite employers are

11

presented in revenue net, as the Company does not retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is primarily responsible for providing the service and has discretion in establishing wages. The fees collected from the worksite employers for benefits (i.e., PEO benefits pass-throughs), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company acts as a principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for fulfilling the service and has discretion in establishing price. The Company has further disaggregated HRO to separate out its PEO benefits pass-through revenues.

The Company enters into service agreements with clients that include anywhere from one service to a full suite of services. The Company’s agreements vary in duration having a legally enforceable term of 30 days to 5 years. The performance obligations in the agreements are generally combined into one performance obligation, as they are considered a series of distinct services, and are satisfied over time because the client simultaneously receives and consumes the benefits provided as the Company performs the services. The Company uses the output method based on a fixed fee per employee serviced to recognize revenue, as the value to the client of the goods or services transferred to date (e.g., number of payees or number of payrolls processed) appropriately depicts our performance towards complete satisfaction of the performance obligation. The fees are typically billed in the period in which services are performed.

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

Collection of consideration the Company expects to receive typically occurs within 30 to 60 days of billing. We assess the collectability of revenues based primarily on the creditworthiness of the client as determined by credit checks and analysis, as well as the client's payment history.

The following tables provide details of revenue by our strategic pillars with disaggregation for PEO benefits pass-throughs and client fund interest, and includes a reconciliation to the Company’s reportable segments (in millions):

 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
Types of Revenues
2019
 
2018
 
2019
 
2018
HCM
$
1,771.4

 
$
1,759.4

 
$
4,886.1

 
$
4,696.4

HRO, excluding PEO benefits pass-throughs
678.7

 
661.7

 
1,855.4

 
1,713.6

PEO benefits pass-throughs
684.5

 
626.4

 
2,011.1

 
1,828.7

Global
545.4

 
513.7

 
1,508.9

 
1,431.9

Interest on funds held for clients
167.4

 
134.8

 
415.0

 
340.9

Total Revenues
$
3,847.4

 
$
3,696.0

 
$
10,676.5

 
$
10,011.5


Reconciliation of disaggregated revenue to our reportable segments for the three months ended March 31, 2019:
Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
1,774.7

 
$
—

 
$
(3.3
)
 
$
1,771.4

HRO, excluding PEO benefits pass-throughs
233.2

 
448.6

 
(3.1
)
 
678.7

PEO benefits pass-throughs
—

 
684.5

 
—

 
684.5

Global
545.4

 
—

 
—

 
545.4

Interest on funds held for clients
165.8

 
1.6

 
—

 
167.4

Total Segment Revenues
$
2,719.1

 
$
1,134.7

 
$
(6.4
)
 
$
3,847.4



12

Reconciliation of disaggregated revenue to our reportable segments for the three months ended March 31, 2018:
Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
1,756.3

 
$
—

 
$
3.1

 
$
1,759.4

HRO, excluding PEO benefits pass-throughs
225.1

 
439.5

 
(2.9
)
 
661.7

PEO benefits pass-throughs
—

 
626.4

 
—

 
626.4

Global
513.7

 
—

 
—

 
513.7

Interest on funds held for clients
133.4

 
1.4

 
—

 
134.8

Total Segment Revenues
$
2,628.5

 
$
1,067.3

 
$
0.2

 
$
3,696.0


Reconciliation of disaggregated revenue to our reportable segments for the nine months ended March 31, 2019:
Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
4,891.1

 
$
—

 
$
(5.0
)
 
$
4,886.1

HRO, excluding PEO benefits pass-throughs
696.6

 
1,165.7

 
(6.9
)
 
1,855.4

PEO benefits pass-throughs
—

 
2,011.1

 
—

 
2,011.1

Global
1,508.9

 
—

 
—

 
1,508.9

Interest on funds held for clients
411.1

 
3.9

 
—

 
415.0

Total Segment Revenues
$
7,507.7

 
$
3,180.7

 
$
(11.9
)
 
$
10,676.5


Reconciliation of disaggregated revenue to our reportable segments for the nine months ended March 31, 2018:
Types of Revenues
Employer Services
 
PEO
 
Other
 
Total
HCM
$
4,694.1

 
$
—

 
$
2.3

 
$
4,696.4

HRO, excluding PEO benefits pass-throughs
642.2

 
1,077.4

 
(6.0
)
 
1,713.6

PEO benefits pass-throughs
—

 
1,828.7

 
—

 
1,828.7

Global
1,431.9

 
—

 
—

 
1,431.9

Interest on funds held for clients
337.5

 
3.4

 
—

 
340.9

Total Segment Revenues
$
7,105.7

 
$
2,909.5

 
$
(3.7
)
 
$
10,011.5


Contract Balances

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

Set up fees received from certain clients to implement the Company's solutions are considered a material right. Therefore, the Company defers revenue associated with these set up fees and records them over the period in which such clients are expected to benefit from the material right, which is approximately five to seven years.

Changes in deferred revenue related to set up fees for the nine months ended March 31, 2019 were as follows:
Contract Liability
 
Contract liability, July 1, 2018
$
607.5

Recognition of revenue included in beginning of year contract liability
(136.7
)
Contract liability, net of revenue recognized on contracts during the period
119.3

Currency adjustments
(10.9
)
Contract liability, March 31, 2019
$
579.2



13

Deferred costs
 
Incremental Costs of Obtaining a Contract

Incremental costs of obtaining a contract (e.g., sales commissions) that are expected to be recovered are capitalized and amortized on a straight-line basis over a period of three to eight years, depending on the Company's business unit. Expected renewal periods are only included in the expected client relationship period if commission amounts paid upon renewal are not commensurate with commission amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. These costs are included in selling, general and administrative expenses.

Costs to fulfill a Contract

The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract, ii) are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contract and iii) are expected to be recovered through revenue generated under the contract. Costs incurred to implement clients on our solutions (e.g., direct labor) are capitalized and amortized on a straight-line basis over the expected client relationship period if the Company expects to recover those costs. The expected client relationship period ranges from three to eight years. These costs are included in operating expenses.

The Company has estimated the amortization periods for the deferred costs by using its historical retention by business unit to estimate the pattern during which the service transfers.

Deferred costs are periodically reviewed for impairment. There were no impairment losses incurred during the period. 

The balance is as follows:
 
March 31,
 
2019
Deferred costs to obtain a contract
$
919.8

Deferred costs to fulfill a contract
1,441.8

Total deferred contract costs (1)
$
2,361.6


(1) The amount of total deferred costs amortized during the three and nine months ended March 31, 2019 and March 31, 2018, were $220.6 million and $655.2 million, and $211.2 million and $623.5 million, respectively.

Note 4. Acquisitions

In October 2017, the Company acquired 100% of the outstanding shares of Global Cash Card, Inc. (“GCC”), a leader in digital payments, including paycards and other electronic accounts, for approximately $490 million in cash, net of cash acquired. The acquisition of GCC makes ADP the only human capital management provider with a proprietary digital payments processing platform. The results of GCC are reported within the Company’s Employer Services segment.

The final purchase price allocation for GCC is as follows:
Goodwill
$
406.1

Identifiable intangible assets
132.5

Other assets
0.8

Total assets acquired
$
539.4

 
 
Total liabilities assumed
$
48.4


The Company determined the purchase price allocations for this acquisition based on estimates of the fair value of tangible and intangible assets acquired and liabilities assumed, utilizing recognized valuation techniques, including the income and market approaches. The goodwill recorded as a result of the GCC transaction represents future economic benefits we expect to achieve as a result of the acquisition and expected cost synergies. None of the goodwill resulting from the acquisition is tax deductible.

14

Intangible assets for GCC, which totaled $132.5 million, included technology and software, and customer contracts and lists which are being amortized over a weighted average life of approximately 8 years.

In January 2018, the Company acquired 100% of the outstanding shares of Work Market, Inc. (“WorkMarket”), a leading provider of cloud-based freelance management solutions, for approximately $125 million in cash.

In July 2018, the Company acquired 100% of outstanding shares of Celergo Holdings, Inc. (“Celergo”), a leading provider of multi-country payroll management services.

These acquisitions, individually or in aggregate, were not material to the Company's results of operations, financial position, or cash flows and, therefore, the pro forma impact of these acquisitions is not presented. The results of these acquisitions are reported within the Company’s Employer Services segment.

Note 5. Service Alignment Initiative

On July 28, 2016, the Company announced a Service Alignment Initiative that simplified the Company's service organization by aligning the Company's service operations to its strategic platforms and locations. In fiscal 2016, the Company entered into leases in Norfolk, Virginia and Maitland, Florida, and in fiscal 2017, the Company entered into a lease in Tempe, Arizona as part of this effort. The Company began incurring charges during the first quarter of fiscal 2017. The charges primarily relate to employee separation benefits recognized under ASC 712, and also include charges for the relocation of certain current Company employees, lease termination costs, and accelerated depreciation of fixed assets. The Company does not expect to recognize any additional significant pre-tax restructuring charges related to the Service Alignment Initiative.

The table below summarizes the composition of the Company's Service Alignment Initiative (reversals)/charges:
 
Three Months Ended
 
Nine Months Ended
 
Cumulative amount from inception through
 
March 31,
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
 
2019
Employee separation benefits (a)
$
(8.2
)
 
$
11.8

 
$
(16.7
)
 
$
8.9

 
$
82.8

Other initiative costs (b)
0.5

 
1.3

 
2.2

 
4.2

 
13.2

Gain on sale of assets (c)
—

 
—

 
(4.1
)
 
—

 
(4.1
)
Total (d)
$
(7.7
)
 
$
13.1

 
$
(18.6
)
 
$
13.1

 
$
91.9


(a) - Net (reversals)/charges are recorded in selling, general and administrative expenses on the Statements of Consolidated Earnings.
(b) - Other initiative costs include costs to relocate certain current Company employees to new locations, lease termination charges (both included within selling, general and administrative expenses on the Statements of Consolidated Earnings), and accelerated depreciation on fixed assets (included within depreciation and amortization on the Statements of Consolidated Earnings).
(c) - During the nine months ended March 31, 2019, the Company sold assets in relation to the Service Alignment Initiative, and as a result recorded a gain of $4.1 million in Other income, net, on the Statement of Consolidated Earnings. Refer to Note 7.
(d) - All charges are included within the Other segment.


15


Activity for the Service Alignment Initiative liability for the nine months ended March 31, 2019 and March 31, 2018, respectively, was as follows:
 
Employee
separation benefits
 
Other initiative costs
 
Total
Balance at June 30, 2018
$
54.0

 
$
0.5

 
$
54.5

Charged to expense
4.1

 
2.2

 
6.3

Reversals
(20.8
)
 
—

 
(20.8
)
Cash payments
(18.0
)
 
(2.3
)
 
(20.3
)
Balance at March 31, 2019
$
19.3

 
$
0.4

 
$
19.7

 
 
 
 
 
 
Balance at June 30, 2017
$
73.9

 
$
0.5

 
$
74.4

Charged to expense
21.8

 
4.2

 
26.0

Reversals
(12.9
)
 
—

 
(12.9
)
Cash payments
(25.9
)
 
(3.4
)
 
(29.3
)
Non-cash utilization
—

 
(0.7
)
 
(0.7
)
Balance at March 31, 2018
$
56.9

 
$
0.6

 
$
57.5


Note 6.  Earnings per Share (“EPS”)
 
 
Basic
 
Effect of Employee Stock Option Shares
 
Effect of
Employee
Restricted
Stock
Shares
 
Diluted
Three Months Ended March 31, 2019
 
 

 
 

 
 

 
 

Net earnings
 
$
753.7

 
 

 
 

 
$
753.7

Weighted average shares (in millions)
 
434.1

 
1.2

 
1.3

 
436.6

EPS
 
$
1.74

 
 

 
 

 
$
1.73

Three Months Ended March 31, 2018
 
 

 
 

 
 

 
 

Net earnings
 
$
661.0

 
 

 
 

 
$
661.0

Weighted average shares (in millions)
 
441.0

 
1.0

 
1.4

 
443.4

EPS
 
$
1.50

 
 

 
 

 
$
1.49

 
 
 
 
 
 
 
 
 
Nine Months Ended March 31, 2019
 
 
 
 
 
 
 
 
Net earnings
 
$
1,817.4

 
 

 
 

 
$
1,817.4

Weighted average shares (in millions)
 
435.5

 
1.3

 
1.3

 
438.1

EPS
 
$
4.17

 
 

 
 

 
$
4.15

Nine Months Ended March 31, 2018
 
 

 
 

 
 

 
 

Net earnings
 
$
1,744.0

 
 

 
 

 
$
1,744.0

Weighted average shares (in millions)
 
441.5

 
1.1

 
1.5

 
444.1

EPS
 
$
3.95

 
 

 
 

 
$
3.93


Options to purchase 0.8 million and 1.1 million shares of common stock for the three months ended March 31, 2019 and 2018, respectively, and 0.6 million and 0.9 million shares of common stock for the nine months ended March 31, 2019 and 2018, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.


16


Note 7. Other Income, Net
 
Three Months Ended
 
Nine Months Ended
 
March 31,
 
March 31,
 
2019
 
2018
 
2019
 
2018
Interest income on corporate funds
$
(15.0
)
 
$
(11.0
)
 
$
(71.6
)
 
$
(59.4
)
Realized gains on available-for-sale securities
(0.6
)
 
(1.3
)
 
(1.2
)
 
(1.9
)
Realized losses on available-for-sale securities
0.5

 
1.6

 
2.6

 
3.2

Impairment of intangible assets
—

 
—

 
12.1

 
—

Gain on sale of assets
—

 
—

 
(4.1
)
 
(0.4
)
Non-service components of pension expense, net (see Note 2)
(5.9
)
 
(16.5
)
 
(5.3
)
 
(49.4
)
Other income, net
$
(21.0
)
 
$
(27.2
)
 
$
(67.5
)
 
$
(107.9
)

The charges within non-service components of pension expense, net include $7.8 million and $35.9 million of non-cash settlement charges and of special termination benefits related to the Voluntary Early Retirement Program (“VERP”), for the three and nine months ended March 31, 2019, respectively, partially offset by $13.7 million and $41.2 million related to other components of net periodic pension cost for the three and nine months ended March 31, 2019, respectively. Refer to Note 2 and Note 12 for further information.

During the three months ended September 30, 2018, the Company wrote down $12.1 million of internally developed software which was determined to have no future use due to redundant software identified as part of a recent acquisition.

During the three months ended December 31, 2018, the Company sold assets in relation to the Service Alignment Initiative and, as a result, recorded a gain of $4.1 million in Other income, net, on the Statement of Consolidated Earnings.

Note 8. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at March 31, 2019 and June 30, 2018 were as follows:
 
March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
 Gains
 
Gross
Unrealized
Losses
 
 Fair Market Value (A)
Type of issue:
 
 
 
 
 
 
 
Money market securities, cash and other cash equivalents
$
14,211.5

 
$
—

 
$
—

 
$
14,211.5

Available-for-sale securities:
 
 
 
 
 
 
 
Corporate bonds
10,116.6

 
86.3

 
(39.8
)
 
10,163.1

Asset-backed securities
4,572.8

 
13.1

 
(22.7
)
 
4,563.2

U.S. Treasury securities
2,932.2

 
8.1

 
(33.4
)
 
2,906.9

U.S. government agency securities
2,671.4

 
8.2

 
(18.4
)
 
2,661.2

Canadian government obligations and Canadian government agency obligations
1,117.3

 
4.6

 
(8.0
)
 
1,113.9

Canadian provincial bonds
777.0

 
8.2

 
(1.5
)
 
783.7

Municipal bonds
600.7

 
11.4

 
(0.3
)
 
611.8

Other securities
892.7

 
9.7

 
(2.8
)
 
899.6

 
 
 
 
 
 
 
 
Total available-for-sale securities
23,680.7

 
149.6

 
(126.9
)
 
23,703.4

 
 
 
 
 
 
 
 
Total corporate investments and funds held for clients
$
37,892.2

 
$
149.6

 
$
(126.9
)
 
$
37,914.9

                                                            
(A) Included within available-for-sale securities are corporate investments with fair values of $10.5 million and funds held for clients with fair values of $23,692.9 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.

17


 
June 30, 2018
 
Amortized 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market Value (B)
Type of issue:
 

 
 

 
 

 
 

Money market securities, cash and other cash equivalents
$
6,542.1

 
$
—

 
$
—

 
$
6,542.1

Available-for-sale securities:
 
 
 
 
 
 
 

Corporate bonds
9,819.4

 
20.3

 
(160.9
)
 
9,678.8

Asset-backed securities
4,555.5

 
0.3

 
(64.1
)
 
4,491.7

U.S. Treasury securities
2,678.9

 
0.4

 
(76.9
)
 
2,602.4

US government agency securities
2,787.0

 
4.0

 
(47.7
)
 
2,743.3

Canadian government obligations and Canadian government agency obligations
1,109.0

 
0.4

 
(20.6
)
 
1,088.8

Canadian provincial bonds
724.5

 
5.1

 
(7.4
)
 
722.2

Municipal bonds
584.6

 
3.2

 
(4.3
)
 
583.5

Other securities
873.0

 
3.0

 
(10.5
)
 
865.5

 
 
 
 
 
 
 
 
Total available-for-sale securities
23,131.9

 
36.7

 
(392.4
)
 
22,776.2

 
 
 
 
 
 
 
 
Total corporate investments and funds held for clients
$
29,674.0

 
$
36.7

 
$
(392.4
)
 
$
29,318.3


(B) Included within available-for-sale securities are corporate investments with fair values of $10.5 million and funds held for clients with fair values of $22,765.7 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.

For a description of the fair value hierarchy and the Company's fair value methodologies, including the use of an independent third-party pricing service, see Note 1 “Summary of Significant Accounting Policies” in the Company's Annual Report on Form 10-K for fiscal 2018. The Company did not transfer any assets between Levels during the nine months ended March 31, 2019 or fiscal 2018. In addition, the Company concurred with and did not adjust the prices obtained from the independent pricing service. The Company had no available-for-sale securities included in Level 1 or Level 3 at March 31, 2019.

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of March 31, 2019, are as follows: 
 
March 31, 2019
 
Securities in Unrealized Loss Position Less Than 12 Months
 
Securities in Unrealized Loss Position Greater Than 12 Months
 
Total
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
Gross
Unrealized
Losses
 
Fair
Market Value
Corporate bonds
$
(0.7
)
 
$
117.3

 
$
(39.1
)
 
$
5,048.6

 
$
(39.8
)
 
$
5,165.9

Asset-backed securities
(0.1
)
 
25.0

 
(22.6
)
 
3,430.9

 
(22.7
)
 
3,455.9

U.S. Treasury securities
—

 
—

 
(33.4
)
 
2,340.9

 
(33.4
)
 
2,340.9

U.S. government agency securities
—

 
—

 
(18.4
)
 
2,153.4

 
(18.4
)
 
2,153.4

Canadian government obligations and Canadian government agency obligations
(7.9
)
 
667.1

 
(0.1
)
 
51.0

 
(8.0
)
 
718.1

Canadian provincial bonds
(0.4
)
 
80.4

 
(1.1
)
 
220.2

 
(1.5
)
 
300.6

Municipal bonds
—

 
4.7

 
(0.3
)
 
46.1

 
(0.3
)
 
50.8

Other securities
—

 
12.1

 
(2.8
)
 
354.5

 
(2.8
)
 
366.6

 
$
(9.1
)
 
$
906.6

 
$
(117.8
)
 
$
13,645.6

 
$
(126.9
)
 
$
14,552.2



18


The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 2018, are as follows:

 
June 30, 2018
 
Securities in Unrealized Loss Position Less Than 12 Months
 
Securities in Unrealized Loss Position Greater Than 12 Months
 
Total
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
Gross
Unrealized
Losses
 
Fair
Market Value
Corporate bonds
$
(118.2
)
 
$
7,132.9

 
$
(42.7
)
 
$
994.2

 
$
(160.9
)
 
$
8,127.1

Asset-backed securities
(47.4
)
 
3,515.9

 
(16.7
)
 
867.7

 
(64.1
)
 
4,383.6

U.S. Treasury securities
(46.9
)
 
1,676.8

 
(30.0
)
 
864.0

 
(76.9
)
 
2,540.8

U.S. government agency securities
(31.2
)
 
2,013.8

 
(16.5
)
 
431.1

 
(47.7
)
 
2,444.9

Canadian government obligations and Canadian government agency obligations
(20.6
)
 
1,020.3

 
—

 
—

 
(20.6
)
 
1,020.3

Canadian provincial bonds
(6.3
)
 
387.7

 
(1.1
)
 
50.4

 
(7.4
)
 
438.1

Municipal bonds
(3.6
)
 
285.8

 
(0.7
)
 
16.0

 
(4.3
)
 
301.8

Other securities
(9.2
)
 
573.3

 
(1.3
)
 
33.4

 
(10.5
)
 
606.7

 
$
(283.4
)
 
$
16,606.5

 
$
(109.0
)
 
$
3,256.8

 
$
(392.4
)
 
$
19,863.3


At March 31, 2019, Corporate bonds include investment-grade debt securities with a wide variety of issuers, industries, and sectors, primarily carry credit ratings of A and above, and have maturities ranging from April 2019 through November 2028.

At March 31, 2019, asset-backed securities include AAA rated senior tranches of securities with predominantly prime collateral of fixed-rate credit card, auto loan, equipment lease, and rate reduction receivables with fair values of $1,957.9 million, $1,940.0 million, $489.5 million, and $175.8 million, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables.  All collateral on such asset-backed securities has performed as expected through March 31, 2019.

At March 31, 2019, U.S. government agency securities primarily include debt directly issued by Federal Home Loan Banks and Federal Farm Credit Banks with fair values of $1,798.0 million and $656.1 million, respectively. U.S. government agency securities represent senior, unsecured, non-callable debt that primarily carry ratings of Aaa by Moody's, and AA+ by Standard & Poor's, with maturities ranging from May 2019 through January 2029.

At March 31, 2019, other securities and their fair value primarily include U.S. government agency commercial mortgage-backed securities of $398.5 million issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association, Aa2 rated United Kingdom Gilt securities of $198.9 million, AAA and AA rated supranational bonds of $117.9 million, and AAA and AA rated sovereign bonds of $77.8 million.

Classification of corporate investments on the Consolidated Balance Sheets is as follows:
 
 
March 31,
 
June 30,
 
 
2019
 
2018
Corporate investments:
 
 
 
 
Cash and cash equivalents
 
$
1,826.2

 
$
2,170.0

Short-term marketable securities (a)
 
7.3

 
3.3

Long-term marketable securities (b)
 
3.2

 
7.2

Total corporate investments
 
$
1,836.7

 
$
2,180.5

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


19


Funds held for clients represent assets that, based upon the Company's intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as client funds obligations on our Consolidated Balance Sheets.

Funds held for clients have been invested in the following categories:
 
 
March 31,