ADP 10-Q Quarterly Report Dec. 31, 2024 | Alphaminr
AUTOMATIC DATA PROCESSING INC
ALPHAMINR
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ADP 10-Q Quarter
ended Dec. 31, 2024

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AUTOMATIC DATA PROCESSING INC - ADP
$301.56
+2.02 (0.67%)
Market Cap
$122,696,018,760
Enterprise Value
$124,762,418,760
Average Volume
$1,954,967
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Valuation & Solvency

P/Tangible Book
24.22
P/E
31.27
P/S
6.16
EV/EBITDA
20.41
EV/Sales
6.27
EV/FCF
28.54
Dividend Yield
1.95%
Payout Ratio
58.37%
Total Debt
$4,282,800,000
Cash & Marketable Securities
$2,216,400,000
Quick Ratio
1.18
Debt/Equity
0.84
Net Debt/EBITDA
0.34
Interest Coverage Ratio
8.91

About

Industry
Staffing & Employment Services
Exchange
NASDAQ
Country
US
Beta
0.75

Company Description

▶
Automatic Data Processing, Inc. provides cloud-based human capital management solutions worldwide. It operates in two segments, Employer Services and Professional Employer Organization (PEO). The Employer Services segment offers strategic, cloud-based platforms, and human resources (HR) outsourcing solutions. Its offerings include payroll, benefits administration, talent management, HR management, workforce management, insurance, retirement, and compliance services, as well as integrated HCM solutions. The PEO Services segment provides HR outsourcing solutions to small and mid-sized businesses through a co-employment model. This segment offers benefits package, protection and compliance, talent engagement, expertise, comprehensive outsourcing, and recruitment process outsourcing services. The company was founded in 1949 and is headquartered in Roseland, New Jersey.
adp-20241231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2024

OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number 1-5397
__________________________
AUTOMATIC DATA PROCESSING, INC.
(Exact name of registrant as specified in its charter)
__________________________
Delaware 22-1467904
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
One ADP Boulevard
Roseland, NJ 07068
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: ( 973 ) 974-5000
__________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.10 Par Value
(voting) 		ADP NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).        Yes ☐ No ý
The number of shares outstanding of the registrant’s common stock as of January 27, 2025 was 406,870,893 .


Table of Contents
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.

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 Six Months Ended
December 31, December 31,
2024 2023 2024 2023
REVENUES:
Revenues, other than interest on funds held
for clients and PEO revenues 		$ 3,114.8 $ 2,898.6 $ 6,122.0 $ 5,741.4
Interest on funds held for clients 272.8 225.3 526.1 427.1
PEO revenues (A) 1,660.8 1,544.1 3,233.0 3,011.8
TOTAL REVENUES 5,048.4 4,668.0 9,881.1 9,180.3
EXPENSES:
Costs of revenues:
Operating expenses 2,376.1 2,213.3 4,661.9 4,370.9
Research and development 239.5 228.7 472.1 465.1
Depreciation and amortization 126.9 119.6 242.2 240.9
TOTAL COSTS OF REVENUES 2,742.5 2,561.6 5,376.2 5,076.9
Selling, general, and administrative expenses 1,006.1 922.5 1,932.8 1,802.8
Interest expense 129.6 104.9 267.4 196.5
TOTAL EXPENSES 3,878.2 3,589.0 7,576.4 7,076.2
Other (income)/expense, net ( 91.1 ) ( 64.8 ) ( 192.8 ) ( 132.5 )
EARNINGS BEFORE INCOME TAXES 1,261.3 1,143.8 2,497.5 2,236.6
Provision for income taxes 298.1 265.4 578.0 498.8
NET EARNINGS $ 963.2 $ 878.4 $ 1,919.5 $ 1,737.8
BASIC EARNINGS PER SHARE $ 2.36 $ 2.14 $ 4.71 $ 4.22
DILUTED EARNINGS PER SHARE $ 2.35 $ 2.13 $ 4.69 $ 4.20
Basic weighted average shares outstanding 407.6 411.1 407.7 411.4
Diluted weighted average shares outstanding 409.0 412.5 409.3 414.0

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 19,420.8 million and $ 18,379.2 million for the three months ended December 31, 2024 and 2023, respectively, and $ 36,614.4 million and $ 34,373.8 million for the six months ended December 31, 2024 and 2023, 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 Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Net earnings $ 963.2 $ 878.4 $ 1,919.5 $ 1,737.8
Other comprehensive income/(losses):
Currency translation adjustments ( 101.0 ) 53.9 ( 51.8 ) 9.3
Unrealized net (losses)/gains on available-for-sale securities ( 423.8 ) 860.5 440.5 709.9
Tax effect 94.2 ( 194.9 ) ( 103.6 ) ( 164.8 )
Reclassification of realized net losses on available-for-sale securities to net earnings 0.6 2.0 0.8 4.0
Tax effect ( 0.1 ) ( 0.5 ) ( 0.1 ) ( 1.0 )
Unrealized loss on cash flow hedging activities — — ( 12.5 ) —
Tax effect — — 3.1 —
Amortization of unrealized losses on cash flow hedging activities 1.4 1.1 2.5 2.2
Tax effect ( 0.3 ) ( 0.2 ) ( 0.6 ) ( 0.5 )
Reclassification of pension liability adjustment to net earnings 0.7 0.9 1.8 1.9
Tax effect ( 0.2 ) ( 0.2 ) ( 0.5 ) ( 0.4 )
Other comprehensive (loss)/income, net of tax ( 428.5 ) 722.6 279.6 560.6
Comprehensive income $ 534.7 $ 1,601.0 $ 2,199.1 $ 2,298.4






















See notes to the Consolidated Financial Statements.
4

Automatic Data Processing, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
December 31, June 30,
2024 2024
Assets
Current assets:
Cash and cash equivalents $ 2,216.4 $ 2,913.4
Accounts receivable, net of allowance for doubtful accounts of $ 50.3 and $ 52.2 , respectively
3,503.5 3,428.2
Other current assets 1,126.8 1,204.8
Total current assets before funds held for clients 6,846.7 7,546.4
Funds held for clients 47,407.7 37,996.1
Total current assets 54,254.4 45,542.5
Long-term receivables, net of allowance for doubtful accounts of $ 0.2 and $ 0.1 , respectively
5.9 7.3
Property, plant and equipment, net 682.2 685.6
Operating lease right-of-use asset 342.9 370.6
Deferred contract costs 2,936.4 2,965.0
Other assets 951.9 1,102.1
Goodwill 3,183.9 2,353.6
Intangible assets, net 1,739.1 1,336.0
Total assets $ 64,096.7 $ 54,362.7
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 186.4 $ 100.6
Accrued expenses and other current liabilities 3,088.7 3,349.0
Accrued payroll and payroll-related expenses 682.6 958.7
Dividends payable 621.6 566.4
Short-term deferred revenues 236.7 199.8
Obligations under reverse repurchase agreements (A) — 385.4
Short-term debt 1,000.5 1.1
Income taxes payable 4.4 15.1
Total current liabilities before client funds obligations 5,820.9 5,576.1
Client funds obligations 48,482.2 39,503.9
Total current liabilities 54,303.1 45,080.0
Long-term debt 2,982.0 2,991.3
Operating lease liabilities 300.3 328.6
Other liabilities 999.3 990.8
Deferred income taxes 90.8 64.3
Long-term deferred revenues 343.1 360.1
Total liabilities 59,018.6 49,815.1
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $ 1.00 par value: authorized, 0.3 shares; issued, no ne
— —
Common stock, $ 0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at December 31, 2024 and June 30, 2024;
outstanding, 406.9 and 408.1 shares at December 31, 2024 and June 30, 2024, respectively
63.9 63.9
Capital in excess of par value 2,619.6 2,406.9
Retained earnings 24,335.6 23,622.2
Treasury stock - at cost: 231.8 and 230.6 shares at December 31, 2024 and June 30, 2024, respectively
( 20,412.3 ) ( 19,737.1 )
Accumulated other comprehensive (loss)/ income ( 1,528.7 ) ( 1,808.3 )
Total stockholders’ equity 5,078.1 4,547.6
Total liabilities and stockholders’ equity $ 64,096.7 $ 54,362.7

(A ) As of June 30, 2024, $ 384.0 million of short-term marketable securities and $ 1.4 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements (see Note 10).


See notes to the Consolidated Financial Statements.
5
A utomatic Data Processing, Inc. and Subsidiaries
Statements of Consolidated Cash Flows
(In millions)
(Unaudited)

Six Months Ended
December 31,
2024 2023
Cash Flows from Operating Activities:
Net earnings $ 1,919.5 $ 1,737.8
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Depreciation and amortization 289.7 281.6
Amortization of deferred contract costs 565.9 526.7
Deferred income taxes 32.5 22.5
Stock-based compensation expense 139.7 132.4
Bad debt expense 23.1 24.5
Net pension income ( 9.8 ) ( 11.6 )
Net accretion of discounts and amortization of premiums on available-for-sale securities ( 31.5 ) ( 17.4 )
Other 4.7 ( 7.6 )
Changes in operating assets and liabilities:
Increase in accounts receivable ( 94.7 ) ( 382.3 )
Increase in deferred contract costs ( 565.3 ) ( 538.0 )
Increase in other assets ( 271.0 ) ( 313.6 )
Increase/(Decrease) in accounts payable 82.4 ( 19.0 )
Decrease in accrued expenses and other liabilities ( 110.5 ) ( 77.1 )
Net cash flows provided by operating activities 1,974.7 1,358.9
Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities ( 3,990.7 ) ( 1,305.5 )
Proceeds from the sales and maturities of corporate and client funds marketable securities 2,524.1 1,503.2
Capital expenditures ( 98.2 ) ( 94.1 )
Additions to intangibles ( 175.7 ) ( 165.7 )
Acquisitions of businesses, net of cash acquired ( 1,160.6 ) ( 33.6 )
Proceeds from sale of property, plant, and equipment and other assets 3.3 26.4
Other ( 4.5 ) ( 8.5 )
Net cash flows used in investing activities ( 2,902.3 ) ( 77.8 )
Cash Flows from Financing Activities:
Net increase in client funds obligations 9,090.4 5,421.9
Net cash distributed from the Internal Revenue Service ( 487.6 ) —
Payments of debt ( 0.6 ) ( 0.5 )
Proceeds from the issuance of debt 988.9 —
Settlement of cash flow hedges ( 12.5 ) —
Repurchases of common stock ( 644.9 ) ( 504.7 )
Net proceeds from stock purchase plan and stock-based compensation plans 38.6 ( 17.5 )
Dividends paid ( 1,145.1 ) ( 1,032.1 )
Net proceeds related to reverse repurchase agreements ( 344.7 ) ( 51.0 )
Net cash flows provided by financing activities 7,482.5 3,816.1
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents ( 36.7 ) 10.6
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents 6,518.2 5,107.8
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period 10,086.0 8,771.5
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period $ 16,604.2 $ 13,879.3
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets
Cash and cash equivalents 2,216.4 1,641.3
Restricted cash and restricted cash equivalents included in funds held for clients (A) 14,387.8 12,238.0
Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 16,604.2 $ 13,879.3
Supplemental disclosures of cash flow information:
Cash paid for interest $ 249.5 $ 192.8
Cash paid for income taxes, net of income tax refunds $ 583.5 $ 590.4
(A) See Note 7 for a reconciliation of restricted cash and restricted cash equivalents in funds held for clients on the Consolidated Balance Sheets.


See notes to the Consolidated Financial Statements.
6

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

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

The Company has a grantor trust, which holds the majority of the funds provided by its clients pending remittance to employees of those clients, tax authorities, and other payees. The Company is the sole beneficial owner of the trust. The trust meets the criteria in Accounting Standards Codification (“ASC”) 810, “Consolidation” to be characterized as a variable interest entity (“VIE”). The Company has determined that it has a controlling financial interest in the trust because it has both (1) the power to direct the activities that most significantly impact the economic performance of the trust (including the power to make all investment decisions for the trust) and (2) the right to receive benefits that could potentially be significant to the trust (in the form of investment returns) and, therefore, consolidates the trust. Further information on these funds and the Company’s obligations to remit to its clients’ employees, tax authorities, and other payees is provided in Note 7, “Corporate Investments and Funds Held for Clients.”

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, expenses, and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (“fiscal 2024”). Certain amounts from the prior year's financial statements have been reclassified in order to conform to the current year's presentation.

Note 2. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

None.
Recently Issued Accounting Pronouncements

Standard Description Effective Date Effect on Financial Statements or Other Significant Matters
ASU 2024-03 Disaggregation of Income Statement Expenses (Subtopic 220-40) This update improves financial reporting by requiring enhanced disclosures of the expense captions in the Income Statement within the Notes to the financial statements. June 30, 2028
(Fiscal 2028) 		The Company is assessing this guidance. The adoption will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, and cash flows.
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures This update enhances the transparency and decision usefulness of income tax disclosures to better assess how an entity’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows. June 30, 2026
(Fiscal 2026) 		The Company is assessing this guidance. The adoption will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, and cash flows.
ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures This update improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and certain quantitative disclosures. June 30, 2025
(Fiscal 2025) 		The Company is assessing this guidance. The adoption will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, and cash flows.

7

Note 3. Revenue

Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three business pillars: Human Capital Management (“HCM”), HR Outsourcing (“HRO”), and Global Solutions (“Global”), with separate disaggregation for PEO zero-margin benefits pass-through revenues and client funds interest revenues. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

The following tables provide details of revenue by our business pillars, and include a reconciliation to the Company’s reportable segments:
Three Months Ended Six Months Ended
December 31, December 31,
Types of Revenues 2024 2023 2024 2023
HCM $ 2,131.9 $ 1,975.2 $ 4,157.3 $ 3,889.4
HRO, excluding PEO zero-margin benefits pass-throughs 943.2 888.7 1,808.4 1,700.4
PEO zero-margin benefits pass-throughs 1,055.2 970.7 2,104.4 1,947.5
Global 645.3 608.1 1,284.9 1,215.9
Interest on funds held for clients 272.8 225.3 526.1 427.1
Total Revenues $ 5,048.4 $ 4,668.0 $ 9,881.1 $ 9,180.3

Reconciliation of disaggregated revenue to our reportable segments for the three months ended December 31, 2024:
Types of Revenues Employer Services PEO Other Total
HCM $ 2,134.4 $ — $ ( 2.5 ) $ 2,131.9
HRO, excluding PEO zero-margin benefits pass-throughs 338.5 605.6 ( 0.9 ) 943.2
PEO zero-margin benefits pass-throughs — 1,055.2 — 1,055.2
Global 645.3 — — 645.3
Interest on funds held for clients 270.3 2.5 — 272.8
Total Segment Revenues $ 3,388.5 $ 1,663.3 $ ( 3.4 ) $ 5,048.4

Reconciliation of disaggregated revenue to our reportable segments for the three months ended December 31, 2023:
Types of Revenues Employer Services PEO Other Total
HCM $ 1,977.4 $ — $ ( 2.2 ) $ 1,975.2
HRO, excluding PEO zero-margin benefits pass-throughs 316.4 573.4 ( 1.1 ) 888.7
PEO zero-margin benefits pass-throughs — 970.7 — 970.7
Global 608.1 — — 608.1
Interest on funds held for clients 223.3 2.0 — 225.3
Total Segment Revenues $ 3,125.2 $ 1,546.1 $ ( 3.3 ) $ 4,668.0

Reconciliation of disaggregated revenue to our reportable segments for the six months ended December 31, 2024:
Types of Revenues Employer Services PEO Other Total
HCM $ 4,162.0 $ — $ ( 4.7 ) $ 4,157.3
HRO, excluding PEO zero-margin benefits pass-throughs 681.3 1,128.6 ( 1.5 ) 1,808.4
PEO zero-margin benefits pass-throughs — 2,104.4 — 2,104.4
Global 1,284.9 — — 1,284.9
Interest on funds held for clients 521.3 4.8 — 526.1
Total Segment Revenues $ 6,649.5 $ 3,237.8 $ ( 6.2 ) $ 9,881.1

8

Reconciliation of disaggregated revenue to our reportable segments for the six months ended December 31, 2023:
Types of Revenues Employer Services PEO Other Total
HCM $ 3,894.0 $ — $ ( 4.6 ) $ 3,889.4
HRO, excluding PEO zero-margin benefits pass-throughs 638.5 1,064.3 ( 2.4 ) 1,700.4
PEO zero-margin benefits pass-throughs — 1,947.5 — 1,947.5
Global 1,215.9 — — 1,215.9
Interest on funds held for clients 423.2 3.9 — 427.1
Total Segment Revenues $ 6,171.6 $ 3,015.7 $ ( 7.0 ) $ 9,180.3

Contract Balances

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

Changes in deferred revenues related to set up fees for the six months ended December 31, 2024 were as follows:
Contract Liability
Contract liability, July 1, 2024 $ 491.6
Recognition of revenue included in beginning of year contract liability ( 69.9 )
Contract liability, net of revenue recognized on contracts during the period 60.9
Currency translation adjustments ( 10.8 )
Contract liability, December 31, 2024 $ 471.8

Note 4. Acquisition

In October 2024, the Company acquired WorkForce Software, a premier workforce management solutions provider that specializes in supporting large, global enterprises, utilizing cash on hand. The results of WorkForce Software will be reported within the Company’s Employer Services segment. Pro forma information has not been presented because the effect of the acquisition is not material to the Company's consolidated financial results.

The following table reconciles the purchase price to the cash paid for the acquisition, net of cash acquired:
Purchase price $ 1,173.1
Less: cash acquired ( 12.5 )
Cash paid for acquisition of business, net of cash acquired $ 1,160.6

The preliminary allocation of the purchase price is based upon estimates and assumptions that are subject to change within the measurement period, which is one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to the measurement of certain assets and liabilities, including identifiable intangible assets, and the finalization of net working capital items included in the purchase price allocation. Accordingly, the measurement period for such purchase price allocations will end when the information becomes available but will not exceed twelve months from the date of acquisition.

The acquisition was accounted for using the acquisition method of accounting. The Company recognized assets acquired and liabilities assumed at their fair value as of the date of acquisition, with the excess recorded to goodwill. The preliminary purchase price allocation for WorkForce Software is as follows:
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Cash $ 12.5
Accounts receivable, net of allowance for doubtful accounts 20.0
Identifiable intangible assets (1) 417.0
Goodwill 846.4
All other assets 21.9
Total assets acquired $ 1,317.8
Deferred revenue $ 39.6
Deferred income taxes 46.6
All other liabilities 58.5
Total liabilities assumed $ 144.7
Total net assets acquired $ 1,173.1

(1) Intangible assets are recorded at estimated fair value, as determined by management based on available information which includes an estimated valuation by an independent third-party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach, specifically the relief from royalty and the multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, discounted at an appropriate rate of return which are based on the weighted average cost of capital for both the Company and other market participants, projected customer attrition rates, as well as applicable royalty rates for comparable assets. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to the future cash flows. The estimated fair value of intangible assets and related useful lives as included in the estimated purchase price allocation include:

Estimated Fair Value Estimated Useful Life
(in years)
Technology $ 200.0 7
Customer/Partner relationships $ 210.0 8
Tradename $ 7.0 4

The goodwill recorded as a result of the WorkForce Software transaction represents future economic benefits the Company expects to achieve as a result of the acquisition, including expected synergies along with the value of the assembled workforce. None of the goodwill resulting from the acquisition is tax deductible.
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Note 5. Earnings per Share (“EPS”)
Basic Effect of Employee Stock Option Shares Effect of
Employee
Restricted
Stock
Shares 		Diluted
Three Months Ended December 31, 2024
Net earnings $ 963.2 $ 963.2
Weighted average shares (in millions) 407.6 0.6 0.8 409.0
EPS $ 2.36 $ 2.35
Three Months Ended December 31, 2023
Net earnings $ 878.4 $ 878.4
Weighted average shares (in millions) 411.1 0.8 0.6 412.5
EPS $ 2.14 $ 2.13
Six Months Ended December 31, 2024
Net earnings $ 1,919.5 $ 1,919.5
Weighted average shares (in millions) 407.7 0.7 0.9 409.3
EPS $ 4.71 $ 4.69
Six Months Ended December 31, 2023
Net earnings $ 1,737.8 $ 1,737.8
Weighted average shares (in millions) 411.4 0.9 1.7 414.0
EPS $ 4.22 $ 4.20

For the three and six months ended December 31, 2024, there were no stock options excluded from the calculation of diluted earnings per share due to anti-dilution. For the three months ended December 31, 2023, there were 0.1 million stock options excluded from the calculation of diluted earnings per share due to anti-dilution. For the six months ended December 31, 2023, there were no stock options excluded from the calculation of diluted earnings per share due to anti-dilution.

Note 6. Other (Income)/Expense, Net
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Interest income on corporate funds $ ( 83.9 ) $ ( 56.9 ) $ ( 175.5 ) $ ( 103.4 )
Realized losses on available-for-sale securities, net 0.6 2.0 0.8 4.0
Gain on sale of assets — ( 1.4 ) ( 2.4 ) ( 16.0 )
Non-service components of pension income, net (see Note 12) ( 7.8 ) ( 8.5 ) ( 15.7 ) ( 17.1 )
Other (income)/expense, net $ ( 91.1 ) $ ( 64.8 ) $ ( 192.8 ) $ ( 132.5 )

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Note 7. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at December 31, 2024 and June 30, 2024 were as follows:
December 31, 2024
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair Market Value (A)
Type of issue:
Money market securities, cash and other cash equivalents $ 16,604.2 $ — $ — $ 16,604.2
Available-for-sale securities:
Corporate bonds 17,699.9 17.1 ( 708.7 ) 17,008.3
U.S. Treasury securities 8,167.5 17.7 ( 99.0 ) 8,086.2
Canadian government obligations and Canadian government agency obligations
2,183.3 12.3 ( 51.7 ) 2,143.9
U.S. government agency securities 1,602.7 0.2 ( 118.1 ) 1,484.8
Asset-backed securities 1,600.5 8.3 ( 28.3 ) 1,580.5
Canadian provincial bonds 1,108.5 8.4 ( 42.6 ) 1,074.3
Commercial mortgage-backed securities 481.4 — ( 28.4 ) 453.0
Other securities 1,250.6 2.1 ( 63.8 ) 1,188.9
Total available-for-sale securities 34,094.4 66.1 ( 1,140.6 ) 33,019.9
Total corporate investments and funds held for clients $ 50,698.6 $ 66.1 $ ( 1,140.6 ) $ 49,624.1
(A) Included within available-for-sale securities are funds held for clients with fair value of $ 33,019.9 million. There are no corporate investments included within available-for-sale securities at December 31, 2024. All available-for-sale securities were included in Level 2 of the fair value hierarchy.
June 30, 2024
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Fair Market Value (B)
Type of issue:
Money market securities, cash and other cash equivalents $ 10,086.0 $ — $ — $ 10,086.0
Available-for-sale securities:
Corporate bonds 16,833.3 11.5 ( 944.8 ) 15,900.0
U.S. Treasury securities 7,701.2 9.0 ( 164.5 ) 7,545.7
Canadian government obligations and Canadian government agency obligations
2,130.7 1.7 ( 86.6 ) 2,045.8
U.S. government agency securities 1,645.0 0.5 ( 140.6 ) 1,504.9
Asset-backed securities 1,394.9 3.9 ( 43.0 ) 1,355.8
Canadian provincial bonds 1,116.3 2.3 ( 56.2 ) 1,062.4
Commercial mortgage-backed securities 535.9 — ( 35.1 ) 500.8
Other securities 1,366.0 2.0 ( 75.9 ) 1,292.1
Total available-for-sale securities 32,723.3 30.9 ( 1,546.7 ) 31,207.5
Total corporate investments and funds held for clients $ 42,809.3 $ 30.9 $ ( 1,546.7 ) $ 41,293.5
(B) Included within available-for-sale securities are corporate investments with fair values of $ 384.0 million and funds held for clients with fair values of $ 30,823.5 million. All available-for-sale securities were included in Level 2 of the fair value hierarchy.

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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 2024. 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 December 31, 2024.

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 December 31, 2024, are as follows:
December 31, 2024
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 $ ( 51.8 ) $ 3,389.6 $ ( 656.9 ) $ 11,809.9 $ ( 708.7 ) $ 15,199.5
U.S. Treasury securities ( 20.3 ) 2,677.3 ( 78.7 ) 2,754.4 ( 99.0 ) 5,431.7
Canadian government obligations and Canadian government agency obligations
( 0.7 ) 266.8 ( 51.0 ) 1,311.2 ( 51.7 ) 1,578.0
U.S. government agency securities ( 1.9 ) 113.0 ( 116.2 ) 1,346.8 ( 118.1 ) 1,459.8
Asset-backed securities ( 3.0 ) 271.4 ( 25.3 ) 601.4 ( 28.3 ) 872.8
Canadian provincial bonds ( 3.9 ) 166.5 ( 38.7 ) 612.7 ( 42.6 ) 779.2
Commercial mortgage-backed securities ( 0.4 ) 25.5 ( 28.0 ) 427.6 ( 28.4 ) 453.1
Other securities ( 3.9 ) 325.9 ( 59.9 ) 714.3 ( 63.8 ) 1,040.2
$ ( 85.9 ) $ 7,236.0 $ ( 1,054.7 ) $ 19,578.3 $ ( 1,140.6 ) $ 26,814.3

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 2024, are as follows:
June 30, 2024
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 $ ( 25.8 ) $ 2,173.6 $ ( 919.0 ) $ 12,413.4 $ ( 944.8 ) $ 14,587.0
U.S. Treasury securities ( 23.1 ) 2,186.2 ( 141.4 ) 4,076.9 ( 164.5 ) 6,263.1
Canadian government obligations and Canadian government agency obligations
( 0.9 ) 304.6 ( 85.7 ) 1,591.6 ( 86.6 ) 1,896.2
U.S. government agency securities ( 0.7 ) 51.5 ( 139.9 ) 1,428.2 ( 140.6 ) 1,479.7
Asset-backed securities ( 2.3 ) 351.4 ( 40.7 ) 668.0 ( 43.0 ) 1,019.4
Canadian provincial bonds ( 1.3 ) 193.0 ( 54.9 ) 717.4 ( 56.2 ) 910.4
Commercial mortgage-backed securities ( 0.5 ) 11.2 ( 34.6 ) 489.6 ( 35.1 ) 500.8
Other securities ( 12.2 ) 288.5 ( 63.7 ) 864.8 ( 75.9 ) 1,153.3
$ ( 66.8 ) $ 5,560.0 $ ( 1,479.9 ) $ 22,249.9 $ ( 1,546.7 ) $ 27,809.9

At December 31, 2024, corporate bonds include investment-grade debt securities with a wide variety of issuers, industries, and sectors, primarily carrying credit ratings of A and above, and have maturities ranging from January 2025 through September 2034.

At December 31, 2024, asset-backed securities include AAA-rated senior tranches of securities with predomi nantly prime collateral of fixed-rate auto loan, credit card, and equipment lease receivables with fair values of $ 751.9 million, $ 480.1 million, and $ 167.5 million, respectively. These securities are collateralized by the cash flow s of the underlying pools of
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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 December 31, 2024 .

At December 31, 2024, U.S. government a gency securities primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks with fair values of $ 960.2 million and $ 480.0 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 February 2025 through August 2034.

At December 31, 2024, U.S. government agency commercial mortgage-backed securities of $ 453.0 million include those issued by Federal Home Loan Mortgage Corporation and Federal National Mortgage Association.

At December 31, 2024, other securities primarily include municipal bonds, diversified with a variety of issuers, with credit ratings of A and above with fair val ues of $ 523.7 million, AA-rated United Kingdom Gilt securities of $ 293.9 million, and AAA-rated supranational bonds of $ 213.0 million.

Classification of corporate investments on the Consolidated Balance Sheets is as follows:
December 31, June 30,
2024 2024
Corporate investments:
Cash and cash equivalents $ 2,216.4 $ 2,913.4
Short-term marketable securities (a) — 384.0
Long-term marketable securities (b) — —
Total corporate investments $ 2,216.4 $ 3,297.4

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

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

Funds held for clients have been invested in the following categories:
December 31, June 30,
2024 2024
Funds held for clients:
Restricted cash and cash equivalents held to satisfy client funds obligations $ 14,387.8 $ 7,172.6
Restricted short-term marketable securities held to satisfy client funds obligations 6,807.9 5,538.1
Restricted long-term marketable securities held to satisfy client funds obligations 26,212.0 25,285.4
Total funds held for clients $ 47,407.7 $ 37,996.1

Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll, tax, and other payee payment obligations and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totalin g $ 48,482.2 million and $ 39,503.9 million at December 31, 2024 and June 30, 2024, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purpose of satisfying the client funds obligations. Of the Company’s funds held for clients at December 31, 2024 and June 30, 2024, $ 43,112.4 million and $ 34,940.0 million, respectively, are held in the grantor trust. The liabilities held within the trust are intercompany liabilities to other Company subsidiaries and are eliminated in consolidation.

The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash and cash equivalents related to client funds investments with original maturities of ninety days or less, within the beginning and ending balances of cash, cash equivalents, restricted cash, and restricted cash equivalents. The Company has reported the cash flows related to the
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cash received from and paid on behalf of clients on a net basis within net increase / (decrease) in client funds obligations in the financing activities section of the Statements of Consolidated Cash Flows.

All available-for-sale securities were rated as investment grade at December 31, 2024.
Expected maturities of available-for-sale securities at December 31, 2024 are as follows:
One year or less $ 6,807.9
One year to two years 7,555.4
Two years to three years 4,061.8
Three years to four years 5,502.4
After four years 9,092.4
Total available-for-sale securities $ 33,019.9

Note 8. Leases

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

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

The components of operating lease expense were as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Operating lease cost $ 27.3 $ 32.2 $ 54.8 $ 66.2
Short-term lease cost 0.2 0.4 0.5 0.9
Variable lease cost 4.6 4.8 11.2 8.0
Total operating lease cost $ 32.1 $ 37.4 $ 66.5 $ 75.1
The following table provides supplemental cash flow information related to the Company's leases:
Six Months Ended
December 31,
2024 2023
Cash paid for operating lease liabilities $ 59.3 $ 63.6
Operating lease ROU assets obtained in exchange for new operating lease liabilities $ 31.7 $ 45.8

Other information related to our operating lease liabilities is as follows:
December 31, June 30,
2024 2024
Weighted-average remaining lease term (in years) 5 5
Weighted-average discount rate 3.4 % 3.3 %
Current operating lease liability $ 94.6 $ 92.2
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As of December 31, 2024, maturities of operating lease liabilities are as follows:
Six months ending June 30, 2025 $ 55.2
Twelve months ending June 30, 2026 100.1
Twelve months ending June 30, 2027 87.1
Twelve months ending June 30, 2028 66.6
Twelve months ending June 30, 2029 44.4
Thereafter 77.7
Total undiscounted lease obligations 431.1
Less: Imputed interest ( 36.2 )
Net lease obligations $ 394.9

Note 9. Goodwill and Intangible Assets, net

Changes in goodwill for the six months ended December 31, 2024 are as follows:
Employer
Services 		PEO
Services 		Total
Balance at June 30, 2024 $ 2,348.8 $ 4.8 $ 2,353.6
Additions and other adjustments 846.4 — 846.4
Currency translation adjustments ( 16.1 ) — ( 16.1 )
Balance at December 31, 2024 $ 3,179.1 $ 4.8 $ 3,183.9

Components of intangible assets, net, are as follows:
December 31, June 30,
2024 2024
Intangible assets:
Software and software licenses $ 4,098.6 $ 3,803.7
Customer contracts and lists 1,420.0 1,181.6
Other intangibles 249.3 242.0
5,767.9 5,227.3
Less accumulated amortization:
Software and software licenses ( 2,743.5 ) ( 2,642.6 )
Customer contracts and lists ( 1,042.9 ) ( 1,007.6 )
Other intangibles ( 242.4 ) ( 241.1 )
( 4,028.8 ) ( 3,891.3 )
Intangible assets, net $ 1,739.1 $ 1,336.0

Other intangibles consist primarily of purchased rights, trademarks and trade names (acquired directly or through acquisitions). All intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 6 years ( 6 years for software and software licenses, 5 years for customer contracts and lists, and 4 years for other intangibles). Amortization of intangible assets was $ 100.7 million and $ 94.5 million for the three months ended December 31, 2024 and 2023, respectively, and $ 189.7 million and $ 190.2 million for the six months ended December 31, 2024 and 2023, respectively.

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Estimated future amortization expenses of the Company's existing intangible assets are as follows:
Amount
Six months ending June 30, 2025 $ 253.2
Twelve months ending June 30, 2026 $ 362.3
Twelve months ending June 30, 2027 $ 262.5
Twelve months ending June 30, 2028 $ 220.6
Twelve months ending June 30, 2029 $ 190.1
Twelve months ending June 30, 2030 $ 148.8

Note 10. Short-term Financing

The Company has a $ 4.55 billion, 364 -day credit agreement that matures in June 2025 with a one year term-out option. The Company also has a $ 2.25 billion, five year credit facility that matures in June 2028 that contains an accordion feature under which the aggregate commitment can be increased by $ 500 million, subject to the availability of additional commitments. In addition, the Company also has a five year , $ 3.5 billion credit facility maturing in June 2029 that contains an accordion feature under which the aggregate commitment can be increased by $ 500 million, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to SOFR, the effective federal funds rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The Company had no borrowings through December 31, 2024 under the credit agreements.

The Company's U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. This commercial paper program provides for the issuance of up to $ 10.3 billion in aggregate maturity value. The Company’s commercial paper program is rated A-1+ by Standard & Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At December 31, 2024 and June 30, 2024, the Company had no commercial paper borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Average daily borrowings (in billions) $ 4.5 $ 3.9 $ 4.7 $ 4.0
Weighted average interest rates 4.8 % 5.4 % 5.1 % 5.3 %
Weighted average maturity (approximately in days) 2 days 2 days 2 days 2 days

The Company’s U.S., Canadian and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to five business days. At December 31, 2024, the Company had no outstanding obligations related to reverse repurchase agreements. At June 30, 2024, the Company had $ 385.4 million of outstanding obligations related to reverse repurchase agreements which were fully paid in early July 2024. The Company has $ 7.3 billion available on a committed basis under the U.S. reverse repurchase agreements. Details of the reverse repurchase agreements are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Average outstanding balances (in billions) $ 3.7 $ 2.4 $ 3.7 $ 1.9
Weighted average interest rates 4.8 % 5.4 % 5.0 % 5.4 %

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Note 11. Debt

The Company issued four series of fixed-rate notes with staggered maturities of 7 and 10 years totaling $ 4.0 billion (collectively the “Notes”). The Notes are senior unsecured obligations, and interest is payable in arrears, semi-annually.
During the first quarter ended September 30, 2024, the Company issued $ 1.0 billion of senior notes due in 2034 bearing a fixed interest rate of 4.450 %. In connection with the senior notes issuance, the Company terminated several derivative contracts in place to hedge exposure in changes in benchmark interest rates for the senior notes issued with an aggregate notional amount totaling $ 1.0 billion (of which $ 400.0 million were executed during the three months ended September 30, 2024 and $ 600.0 million were executed on the day of issuance). Since these derivative contracts were classified as cash flow hedges, the unamortized loss of $ 12.5 million was deferred in accumulated other comprehensive income and will be amortized to earnings over the life of the issued Notes as the interest payments are made.
The principal amounts and associated effective interest rates of the Notes and other debt as of December 31, 2024 and June 30, 2024, are as follows:
Debt instrument Effective Interest Rate December 31, 2024 June 30, 2024
Fixed-rate 3.375 % notes due September 15, 2025
3.47 % $ 1,000.0 $ 1,000.0
Fixed-rate 1.700 % notes due May 15, 2028
1.85 % 1,000.0 1,000.0
Fixed-rate 1.250 % notes due September 1, 2030
1.83 % 1,000.0 1,000.0
Fixed-rate 4.450 % notes due September 9, 2034
4.75 % 1,000.0 —
Other 3.5 4.1
4,003.5 3,004.1
Less: current portion ( 1,000.5 ) ( 1.1 )
Less: unamortized discount and debt issuance costs ( 21.0 ) ( 11.7 )
Total long-term debt $ 2,982.0 $ 2,991.3
The effective interest rates for the Notes include the interest on the Notes and amortization of the discount and debt issuance costs.

As of December 31, 2024, the fair value of the Notes, based on Level 2 inputs, was $ 3,688.6 million. 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 2024.

Note 12. Employee Benefit Plans

A.  Stock-based Compensation Plans

The Company's share-based compensation consists of stock options, time-based restricted stock, time-based restricted stock units, performance-based restricted stock, and performance-based restricted stock units. The Company also offers an employee stock purchase plan for eligible employees. Beginning in September 2022, the Company discontinued granting stock options, time-based restricted stock and performance-based restricted stock. Any such future awards will be grants of time-based restricted stock units and/or performance-based restricted stock units, depending on employee eligibility. Time-based restricted stock unit awards and performance-based restricted stock unit awards granted to employees with a home country of the United States are settled in stock, and for awards granted to employees with a home country outside the United States are generally settled in cash.

The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock units. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company repurchased 0.9 million and 1.1 million shares in the three months ended December 31, 2024 and 2023, respectively, and repurchased 2.4 million and 2.1 million shares in the six months ended December 31, 2024 and 2023. 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.

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The following table represents pre-tax stock-based compensation expense for the three and six months ended December 31, 2024 and 2023, respectively:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Operating expenses $ 9.2 $ 7.4 $ 18.3 $ 14.8
Selling, general and administrative expenses 59.6 57.6 101.9 100.4
Research and development 10.3 8.6 19.5 17.2
Total stock-based compensation expense $ 79.1 $ 73.6 $ 139.7 $ 132.4

B.  Pension Plans

The components of net pension income were as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Service cost – benefits earned during the period $ 1.5 $ 1.3 $ 3.0 $ 2.6
Interest cost on projected benefits 21.9 21.1 43.7 42.3
Expected return on plan assets ( 29.0 ) ( 29.0 ) ( 58.0 ) ( 58.0 )
Net amortization and deferral 0.7 0.8 1.5 1.5
Net pension income $ ( 4.9 ) $ ( 5.8 ) $ ( 9.8 ) $ ( 11.6 )

Note 13. Income Taxes

The effective tax rate for the three months ended December 31, 2024 and 2023 was 23.6 % and 23.2 %, respectively. The increase in the effective tax rate is primarily due to a benefit for adjustments to prior year tax liabilities in the three months ended December 31, 2023, partially offset by a higher excess tax benefit on stock-based compensation in the three months ended December 31, 2024.

The effective tax rate for the six months ended December 31, 2024 and 2023 was 23.1 % and 22.3 %, respectively. The increase in the effective tax rate is primarily due to a benefit for adjustments to prior year tax liabilities, lower reserves for uncertain tax positions and a valuation allowance release in the six months ended December 31, 2023.

Note 14. Commitments and Contingencies

In May 2020, a putative class action complaint was filed against ADP, TotalSource and related defendants in the U.S. District Court, District of New Jersey. The complaint asserts violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) in connection with the ADP TotalSource Retirement Savings Plan’s fiduciary administrative and investment decision-making. The complaint seeks statutory and other unspecified monetary damages, injunctive relief and attorney’s fees. The Company is unable to estimate any reasonably possible loss, or range of loss, with respect to this matter. The Company is vigorously defending against this lawsuit.

The Company is subject to various claims, litigation, and regulatory compliance matters in the normal course of business. When a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its best estimate for the ultimate loss. Management currently believes that the resolution of these claims, litigation and regulatory compliance matters against us, individually or in the aggregate, will not have a material adverse impact on our consolidated results of operations, financial condition or cash flows. These matters are subject to inherent uncertainties and management's view of these matters may change in the future.

It is not the Company’s business practice to enter into off-balance sheet arrangements. In the normal course of business, the Company may enter into contracts in which it makes representations and warranties that relate to the performance of the Company’s services and products. The Company does not expect any material losses related to such representations and warranties.

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Note 15. Stockholders' Equity

Changes in stockholders' equity by component are as follows:

Three Months Ended
December 31, 2024
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at September 30, 2024 $ 63.9 $ 2,528.6 $ 24,001.2 $ ( 20,144.9 ) $ ( 1,100.2 ) $ 5,348.6
Net earnings — — 963.2 — — 963.2
Other comprehensive income — — — — ( 428.5 ) ( 428.5 )
Stock-based compensation expense — 70.2 — — — 70.2
Issuances relating to stock compensation plans — 20.8 — 6.5 — 27.3
Treasury stock acquired ( 0.9 million shares repurchased)
— — — ( 273.9 ) — ( 273.9 )
Dividends declared ($ 1.54 per share)
— — ( 628.8 ) — — ( 628.8 )
Balance at December 31, 2024 $ 63.9 $ 2,619.6 $ 24,335.6 $ ( 20,412.3 ) $ ( 1,528.7 ) $ 5,078.1

Three Months Ended
December 31, 2023
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at September 30, 2023 $ 63.9 $ 2,188.7 $ 22,455.4 $ ( 18,767.4 ) $ ( 2,467.8 ) $ 3,472.8
Net earnings — — 878.4 — — 878.4
Other comprehensive income — — — — 722.6 722.6
Stock-based compensation expense — 67.6 — — — 67.6
Issuances relating to stock compensation plans — 6.6 — 0.3 — 6.9
Treasury stock acquired ( 1.1 million shares repurchased)
— — — ( 252.0 ) — ( 252.0 )
Dividends declared ($ 1.40 per share)
— — ( 576.7 ) — — ( 576.7 )
Balance at December 31, 2023 $ 63.9 $ 2,262.9 $ 22,757.1 $ ( 19,019.1 ) $ ( 1,745.2 ) $ 4,319.6


20

Six Months Ended
December 31, 2024
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at June 30, 2024 $ 63.9 $ 2,406.9 $ 23,622.2 $ ( 19,737.1 ) $ ( 1,808.3 ) $ 4,547.6
Net earnings — — 1,919.5 — — 1,919.5
Other comprehensive income — — — — 279.6 279.6
Stock-based compensation expense — 125.0 — — — 125.0
Issuances relating to stock compensation plans — 87.7 — 56.2 — 143.9
Treasury stock acquired ( 2.4 million shares repurchased)
— — — ( 731.4 ) — ( 731.4 )
Dividends declared ($ 2.94 per share)
— — ( 1,206.1 ) — — ( 1,206.1 )
Balance at December 31, 2024 $ 63.9 $ 2,619.6 $ 24,335.6 $ ( 20,412.3 ) $ ( 1,528.7 ) $ 5,078.1

Six Months Ended
December 31, 2023
Common Stock Capital in Excess of Par Value Retained Earnings Treasury Stock AOCI Total
Balance at June 30, 2023 $ 63.9 $ 2,102.3 $ 22,118.0 $ ( 18,469.3 ) $ ( 2,305.8 ) $ 3,509.1
Net earnings — — 1,737.8 — — 1,737.8
Other comprehensive income — — — — 560.6 560.6
Stock-based compensation expense — 121.7 — — — 121.7
Issuances relating to stock compensation plans — 38.9 — 49.7 — 88.6
Treasury stock acquired ( 2.1 million shares repurchased)
— — — ( 599.5 ) — ( 599.5 )
Dividends declared ($ 2.65 per share)
— — ( 1,098.7 ) — — ( 1,098.7 )
Balance at December 31, 2023 $ 63.9 $ 2,262.9 $ 22,757.1 $ ( 19,019.1 ) $ ( 1,745.2 ) $ 4,319.6

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Note 16. Reclassifications out of Accumulated Other Comprehensive Income (“AOCI”)

Changes in AOCI by component are as follows:

Three Months Ended
December 31, 2024
Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive (Loss) /Income
Balance at September 30, 2024 $ ( 329.6 ) $ ( 511.3 ) $ ( 28.6 ) $ ( 230.7 ) $ ( 1,100.2 )
Other comprehensive income/(loss) before reclassification adjustments ( 101.0 ) ( 423.8 ) — — ( 524.8 )
Tax effect — 94.2 — — 94.2
Reclassification adjustments to net earnings — 0.6 (A) 1.4 (C) 0.7 (B) 2.7
Tax effect — ( 0.1 ) ( 0.3 ) ( 0.2 ) ( 0.6 )
Balance at December 31, 2024 $ ( 430.6 ) $ ( 840.4 ) $ ( 27.5 ) $ ( 230.2 ) $ ( 1,528.7 )

Three Months Ended
December 31, 2023
Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive (Loss) /Income
Balance at September 30, 2023 $ ( 385.4 ) $ ( 1,824.6 ) $ ( 22.5 ) $ ( 235.3 ) $ ( 2,467.8 )
Other comprehensive income/(loss) before reclassification adjustments 53.9 860.5 — — 914.4
Tax effect — ( 194.9 ) — — ( 194.9 )
Reclassification adjustments to net earnings — 2.0 (A) 1.1 (C) 0.9 (B) 4.0
Tax effect — ( 0.5 ) ( 0.2 ) ( 0.2 ) ( 0.9 )
Balance at December 31, 2023 $ ( 331.5 ) $ ( 1,157.5 ) $ ( 21.6 ) $ ( 234.6 ) $ ( 1,745.2 )
22


Six Months Ended
December 31, 2024
Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive (Loss) /Income
Balance at June 30, 2024 $ ( 378.8 ) $ ( 1,178.0 ) $ ( 20.0 ) $ ( 231.5 ) $ ( 1,808.3 )
Other comprehensive income/(loss) before reclassification adjustments ( 51.8 ) 440.5 ( 12.5 ) — 376.2
Tax effect — ( 103.6 ) 3.1 — ( 100.5 )
Reclassification adjustments to net earnings — 0.8 (A) 2.5 (C) 1.8 (B) 5.1
Tax effect — ( 0.1 ) ( 0.6 ) ( 0.5 ) ( 1.2 )
Balance at December 31, 2024 $ ( 430.6 ) $ ( 840.4 ) $ ( 27.5 ) $ ( 230.2 ) $ ( 1,528.7 )

Six Months Ended
December 31, 2023
Currency Translation Adjustment Net Gains/Losses on Available-for-sale Securities Cash Flow Hedging Activities Pension Liability Accumulated Other Comprehensive (Loss) /Income
Balance at June 30, 2023 $ ( 340.8 ) $ ( 1,705.6 ) $ ( 23.3 ) $ ( 236.1 ) $ ( 2,305.8 )
Other comprehensive income/(loss) before reclassification adjustments 9.3 709.9 — — 719.2
Tax effect — ( 164.8 ) — — ( 164.8 )
Reclassification adjustments to net earnings — 4.0 (A) 2.2 (C) 1.9 (B) 8.1
Tax effect — ( 1.0 ) ( 0.5 ) ( 0.4 ) ( 1.9 )
Balance at December 31, 2023 $ ( 331.5 ) $ ( 1,157.5 ) $ ( 21.6 ) $ ( 234.6 ) $ ( 1,745.2 )

(A) Reclassification adjustments out of AOCI are included within Other (income)/expense, net, on the Statements of Consolidated Earnings.

(B) Reclassification adjustments out of AOCI are included in net pension (income)/expense (see Note 12).

(C) Reclassification adjustments out of AOCI are included in Interest expense on the Statements of Consolidated Earnings (see Note 11).

Note 17. Interim Financial Data by Segment

Based upon similar economic and operational characteristics, the Company’s strategic business units have been aggregated into the following two reportable segments: Employer Services and PEO Services. The primary components of the “Other” segment are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to transformation, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, interest expense and corporate interest income. Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are recorded based on management responsibility.

23

Segment Results:
Revenues
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Employer Services $ 3,388.5 $ 3,125.2 $ 6,649.5 $ 6,171.6
PEO Services 1,663.3 1,546.1 3,237.8 3,015.7
Other ( 3.4 ) ( 3.3 ) ( 6.2 ) ( 7.0 )
$ 5,048.4 $ 4,668.0 $ 9,881.1 $ 9,180.3
Earnings before Income Taxes
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Employer Services $ 1,183.0 $ 1,061.9 $ 2,347.3 $ 2,070.4
PEO Services 251.7 255.0 477.3 477.9
Other ( 173.4 ) ( 173.1 ) ( 327.1 ) ( 311.7 )
$ 1,261.3 $ 1,143.8 $ 2,497.5 $ 2,236.6

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Tabular dollars are presented in millions, except per share amounts)

FORWARD-LOOKING STATEMENTS

This document and other written or oral statements made from time to time by Automatic Data Processing, Inc., its subsidiaries and variable interest entity (“ADP” or the “Company”) 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 "outlook", “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could,” “is designed to” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions 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 or that could contribute to such difference include: ADP's success in obtaining and retaining clients, and selling additional services to clients; the pricing of products and services; the success of our new solutions; our ability to respond successfully to changes in technology, including artificial intelligence; compliance with existing or new legislation or regulations; changes in, or interpretations of, existing legislation or regulations; overall market, political and economic conditions, including interest rate and foreign currency trends and inflation; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs and profitability; security or cyber breaches, fraudulent acts, and system interruptions and failures; employment and wage levels; availability of skilled associates; the impact of new acquisitions and divestitures; the adequacy, effectiveness and success of our business transformation initiatives and the impact of any uncertainties related to major natural disasters or catastrophic events; and supply-chain disruptions. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. These risks and uncertainties, along with the risk factors discussed under “Item 1A. - Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (“fiscal 2024”), and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.

NON-GAAP FINANCIAL MEASURES

In addition to our U.S. GAAP results, we use adjusted results and other non-GAAP metrics to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables in the “Non-GAAP Financial Measures” section for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.


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EXECUTIVE OVERVIEW

We are a leading global provider of cloud-based Human Capital Management (“HCM”) technology solutions to employers around the world. Our HCM solutions, which include both software and outsourcing services, are designed to help our clients manage their workforce through a dynamic business and regulatory landscape and the changing world of work. We continuously seek to enhance our leading HCM solutions to further support our clients. We see tremendous opportunity ahead as we focus on our three key Strategic Priorities: Leading with Best-in-Class HCM technology, Providing Unmatched Expertise and Outsourcing Solutions, and Leveraging our Global Scale for the Benefit of our Clients. Executing on our Strategic Priorities will be critical to enabling our growth in the years ahead.

During the second quarter, we continued to make meaningful progress on our Strategic Priorities. We announced a partnership that brings together Fiserv’s preeminent small business solutions, specifically Clover® and CashFlow Central℠, with RUN, our industry-leading small business payroll and HR solution. Additionally, we started to integrate the WorkForce Software acquisition, which closed in October, into our global HCM ecosystem. Lastly, since the first quarter introduction of ADP Lyric HCM, our flexible, intelligent, and human-centric Global HCM platform, we have experienced a meaningful increase in ADP Lyric's new business activity. During the second quarter, we also achieved a major milestone by increasing our dividend for the 50 th consecutive year.

Highlights from the six months ended December 31, 2024 include:

• Revenue growth of 8% to $9,881.1 million; 7% organic constant currency
• Earnings before income taxes margin expansion of 90 bps, and adjusted EBIT margin expansion of 90 bps
• Diluted and adjusted diluted earnings per share ("EPS") growth of 12%, to $4.69, respectively
• Cash returned via shareholder friendly actions of $1,790M, including $1,145M of dividends and $645M of share repurchases
• Closed the WorkForce Software acquisition in October and started the integration efforts

For the six months ended December 31, 2024, we delivered solid revenue growth of 8%, 7% organic constant currency. Our pays per control metric, which represents the number of employees on ADP clients' payrolls in the United States when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses, grew 2% for the six months ended December 31, 2024 as compared to the six months ended December 31, 2023. PEO average worksite employees increased 3% for the six months ended December 31, 2024, as compared to the six months ended December 31, 2023.

We have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that provide critical support to our clients’ HCM functions. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our re-investments, longer term strategy, and commitments to shareholder friendly actions. We are committed to building upon our past successes by investing in our business through enhancements in research and development and by driving meaningful transformation in the way we operate. Our financial condition remains solid at December 31, 2024 and we remain well positioned to support our clients and our associates.

26

RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS

Total Revenues

For the three and six months ended December 31, respectively:

Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Total Revenues $ 5,048.4 $ 4,668.0 $ 9,881.1 $ 9,180.3
YoY Growth 8 % 6 % 8 % 7 %
YoY Growth, Organic Constant Currency 8 % 6 % 7 % 6 %

Total revenues for the three months ended December 31, 2024 increased due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in zero-margin benefits pass-throughs, an increase in our pays per control and the impact from the WorkForce Software acquisition.

Total revenues for the six months ended December 31, 2024 increased due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in zero-margin benefits pass-throughs, and an increase in our pays per control.

Total revenues for the three months ended December 31, 2024 include interest on funds held for clients of $272.8 million, as compared to $225.3 million for the three months ended December 31, 2023. The increase in the interest earned on funds held for clients resulted from an increase in our average interest rate earned to 3.1% for the three months ended December 31, 2024, as compared to 2.8% for the three months ended December 31, 2023, and an increase in our average client funds balances of 8.1% to $35.3 billion for the three months ended December 31, 2024.

Total revenues for the six months ended December 31, 2024 include interest on funds held for clients of $526.1 million, as compared to $427.1 million for the six months ended December 31, 2023. The increase in the interest earned on funds held for clients resulted from an increase in our average interest rate earned to 3.1% for the six months ended December 31, 2024, as compared to 2.7% for the six months ended December 31, 2023, and an increase in our average client funds balances of 6.7% to $34.0 billion for the six months ended December 31, 2024.


Total Expenses
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 %
Change 		2024 2023 %
Change
Costs of revenues:
Operating expenses $ 2,376.1 $ 2,213.3 7 % $ 4,661.9 $ 4,370.9 7 %
Research and development 239.5 228.7 5 % 472.1 465.1 2 %
Depreciation and amortization 126.9 119.6 6 % 242.2 240.9 1 %
Total costs of revenues 2,742.5 2,561.6 7 % 5,376.2 5,076.9 6 %
Selling, general and administrative expenses 1,006.1 922.5 9 % 1,932.8 1,802.8 7 %
Interest expense 129.6 104.9 24 % 267.4 196.5 36 %
Total expenses $ 3,878.2 $ 3,589.0 8 % $ 7,576.4 $ 7,076.2 7 %

For the three months ended December 31, 2024, operating expenses increased due to an increase of $84.5 million of PEO Services zero-margin benefits pass-through costs from $970.7 million to $1,055.2 million. Additionally, for the three months ended December 31, 2024 operating expenses increased by $36.1 million due to higher service and implementation costs in support of our growing revenue.
27


For the six months ended December 31, 2024, operating expenses increased due to an increase of $156.9 million of PEO Services zero-margin benefits pass-through costs from $1,947.5 million to $2,104.4 million. Additionally, for the six months ended December 31, 2024 operating expenses increased by $60.7 million due to higher service and implementation costs in support of our growing revenue.

Research and development expenses increased for the three and six months ended December 31, 2024 due to increased investments and costs to develop, support, and maintain our new and existing products and the impact from the WorkForce Software acquisition, partially offset by efficiencies from workforce optimization efforts initiated in the prior year and an increase in the capitalizable spend related to the integration of GenAI into our products, as compared to the prior year.

Depreciation and amortization expenses increased for the three and six months ended December 31, 2024 due to the impact from the WorkForce Software acquisition and amortization of new investments in internally developed software primarily for our next-gen products and purchased software, partially offset by lower amortization of customer contracts and lists.

Selling, general and administrative expenses increased for the three and six months ended December 31, 2024 primarily due to increases in selling and marketing expenses of $39.0 million and $73.5 million, respectively, as a result of investments in our sales organization, and an increase from acquisition related costs.

Interest expense increased for the three months ended December 31, 2024 primarily due to a higher volume of average commercial paper borrowings of $4.5 billion and reverse repurchase borrowings of $3.7 billion, as compared to $3.9 billion and $2.4 billion, respectively, for the three months ended December 31, 2023, partially offset by a decrease in average interest rates of 60 basis points for commercial paper and reverse repurchase borrowings.

Interest expense increased for the six months ended December 31, 2024 primarily due to a higher volume of average commercial paper borrowings of $4.7 billion and reverse repurchase borrowings of $3.7 billion, as compared to $4.0 billion and $1.9 billion, respectively, for the six months ended December 31, 2023, partially offset by a decrease in average interest rates of 30 basis points for commercial paper and reverse repurchase borrowings.

Other (Income)/Expense, net
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 $ Change 2024 2023 $ Change
Interest income on corporate funds $ (83.9) $ (56.9) $ 27.0 $ (175.5) $ (103.4) $ 72.1
Realized losses on available-for-sale securities, net 0.6 2.0 1.4 0.8 4.0 3.2
Gain on sale of assets — (1.4) (1.4) (2.4) (16.0) (13.6)
Non-service components of pension income, net (7.8) (8.5) (0.7) (15.7) (17.1) (1.4)
Other (income)/expense, net $ (91.1) $ (64.8) $ 26.3 $ (192.8) $ (132.5) $ 60.3

Interest income on corporate funds increased due to higher average investment balances of $10.0 billion and $10.3 billion for the three and six months ended December 31, 2024, respectively, as compared to $7.8 billion and $7.5 billion for the three and six months ended December 31, 2023, respectively, coupled with higher average interest rates of 3.4% for each period, as compared to 2.9% and 2.8% for the three and six months ended December 31, 2023, respectively. See Note 12 of our Consolidated Financial Statements for further details on non-service components of pension income, net.
28

Earnings Before Income Taxes ("EBIT") and Adjusted EBIT

For the three and six months ended December 31:

Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 YoY Growth 2024 2023 YoY Growth
EBIT $ 1,261.3 $ 1,143.8 10 % $ 2,497.5 $ 2,236.6 12 %
EBIT Margin 25.0 % 24.5 %
50 bps
25.3 % 24.4 %
90 bps
Adjusted EBIT $ 1,272.0 $ 1,147.1 11 % $ 2,504.5 $ 2,240.4 12 %
Adjusted EBIT Margin 25.2 % 24.6 %
60 bps
25.3 % 24.4 %
90 bps

Earnings before income taxes increased for the three and six months ended December 31, 2024, due to the components discussed above.

EBIT Margin increased for the three and six months ended December 31, 2024, due to contributions from client funds interest revenues discussed above, increased interest income on corporate funds, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased interest expense and acquisition related expenses.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds extended investment strate gy, legal settlements, and net charges related to our broad-based transformation initiatives, in the applicable periods.

Provision for Income Taxes

The effective tax rate for the three months ended December 31, 2024 and 2023 was 23.6% and 23.2%, respectively. The increase in the effective tax rate is primarily due to a benefit for adjustments to prior year tax liabilities in the three months ended December 31, 2023, partially offset by a higher excess tax benefit on stock-based compensation in the three months ended December 31, 2024.

The effective tax rate for the six months ended December 31, 2024 and 2023 was 23.1% and 22.3%, respectively. The increase in the effective tax rate is primarily due to a benefit for adjustments to prior year tax liabilities, lower reserves for uncertain tax positions and a valuation allowance release in the six months ended December 31, 2023.

Adjusted Provision for Income Taxes

The adjusted effective tax rate for the three months ended December 31, 2024 and 2023 was 23.6% and 23.2%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.

The adjusted effective tax rate for the six months ended December 31, 2024 and 2023 was 23.1% and 22.3%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.

29

Net Earnings and Diluted EPS, Unadjusted and Adjusted

For the three and six months ended December 31:

Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 YoY Growth 2024 2023 YoY Growth
Net earnings $ 963.2 $ 878.4 10 % $ 1,919.5 $ 1,737.8 10 %
Diluted EPS $ 2.35 $ 2.13 10 % $ 4.69 $ 4.20 12 %
Adjusted net earnings $ 963.2 $ 880.5 9 % $ 1,919.3 $ 1,740.4 10 %
Adjusted diluted EPS $ 2.35 $ 2.13 10 % $ 4.69 $ 4.20 12 %

For the three and six months ended December 31, 2024, net earnings reflect the changes described above in our earnings before income taxes and our effective tax rate.

For the three months ended December 31, 2024, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 0.9 million shares during the three months ended December 31, 2024, and 1.1 million shares during the three months ended December 31, 2023, partially offset by the issuances of shares under our employee benefit plans.

For the six months ended December 31, 2024, in addition to the increase in net earnings, diluted EPS increased as a result of the impact of fewer shares outstanding resulting from the repurchase of approximately 2.4 million shares during the six months ended December 31, 2024, and 2.1 million shares during the six months ended December 31, 2023, partially offset by the issuances of shares under our employee benefit plans.
30

ANALYSIS OF REPORTABLE SEGMENTS
Revenues
Three Months Ended % Change Six Months Ended % Change
December 31, December 31,
2024 2023 As
Reported 		Organic constant currency 2024 2023 As
Reported 		Organic constant currency
Employer Services $ 3,388.5 $ 3,125.2 8 % 7 % $ 6,649.5 $ 6,171.6 8 % 7 %
PEO Services 1,663.3 1,546.1 8 % 8 % 3,237.8 3,015.7 7 % 7 %
Other (3.4) (3.3) n/m n/m (6.2) (7.0) n/m n/m
$ 5,048.4 $ 4,668.0 8 % 8 % $ 9,881.1 $ 9,180.3 8 % 7 %

Earnings before Income Taxes
Three Months Ended %
Change 		Six Months Ended %
Change
December 31, December 31,
2024 2023 As Reported 2024 2023 As
Reported
Employer Services $ 1,183.0 $ 1,061.9 11 % $ 2,347.3 $ 2,070.4 13 %
PEO Services 251.7 255.0 (1) % 477.3 477.9 — %
Other (173.4) (173.1) n/m (327.1) (311.7) n/m
$ 1,261.3 $ 1,143.8 10 % $ 2,497.5 $ 2,236.6 12 %

Margin
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 YoY Growth 2024 2023 YoY Growth
Employer Services 34.9 % 34.0 %
90 bps
35.3 % 33.5 %
180 bps
PEO Services 15.1 % 16.5 %
(140) bps
14.7 % 15.8 %
(110) bps

n/m - not meaningful

Employer Services

Revenues

Revenues increased for the three and six months ended December 31, 2024 due to new business started from New Business Bookings, strong client retention, an increase in pricing, an increase in interest earned on funds held for clients, an increase in our pays per control of 1% and 2%, respectively, and the impact from the WorkForce Software acquisition.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased 11% and 13% for the three and six months ended December 31, 2024, respectively, due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by increased selling expenses.

Margin
31


Employer Services' margin increase for the three and six months ended December 31, 2024, respectively, due to contributions from client funds interest revenues discussed above, and operating efficiencies for costs of servicing our clients on growing revenue, partially offset by acquisition related expenses.

PEO Services

Revenues
PEO Revenues
Three Months Ended Change Six Months Ended Change
December 31, December 31,
2024 2023 $ % 2024 2023 $ %
PEO Services' revenues $ 1,663.3 $ 1,546.1 $ 117.2 8 % $ 3,237.8 $ 3,015.7 $ 222.1 7 %
Less: PEO zero-margin benefits pass-throughs 1,055.2 970.7 84.5 9 % 2,104.4 1,947.5 156.9 8 %
PEO Services' revenues excluding zero-margin benefits pass-throughs $ 608.1 $ 575.4 $ 32.7 6 % $ 1,133.4 $ 1,068.2 $ 65.2 6 %

PEO Services' revenue increased for the three and six months ended December 31, 2024, due to the increase in zero-margin benefits pass-throughs, and an increase in average worksite employees of 3% for each period, as compared to the three and six months ended December 31, 2023.

Earnings before Income Taxes

PEO Services' earnings before income taxes decreased 1% and remained flat for the three and six months ended December 31, 2024, respectively, due to increased revenues discussed above, partially offset by increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and state unemployment insurance, and selling expenses, as compared to the three and six months ended December 31, 2023.

Margin

PEO Services' margin decreased for the three and six months ended December 31, 2024 due to increases in zero-margin benefits pass-through costs, operating costs related to workers' compensation and state unemployment insurance, and selling expenses.

ADP Indemnity provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence. PEO Services has secured a workers’ compensation and employer’s liability insurance policy that caps the exposure for each claim at $1 million per occurrence and has also secured aggregate stop loss insurance that caps aggregate losses at a certain level in fiscal years 2012 and prior from an admitted and licensed insurance company of AIG. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment.

Additionally, starting in fiscal year 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (“Chubb”), to cover substantially all losses incurred by the Company 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. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. ADP Indemnity recorded a pre-tax (loss)/benefit of approximately $(0.8) million and $4.1 million for the three and six months ended December 31, 2024, respectively, as compared to approximately $(1.7) million and $4.5 million for the three and six months ended December 31, 2023, respectively. The pre-tax loss for the three months ended December 31, 2024 was primarily a result of more favorable actuarial loss development in workers’ compensation reserves as compared to December 31, 2023. The pre-tax benefit for the six months ended December 31, 2024 was primarily a result of less favorable actuarial loss development in workers’ compensation reserves as compared to December 31, 2023. In July 2024, ADP Indemnity paid a premium of $276 million t o enter into a reinsurance arrangement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2025 policy year on terms substantially similar to the fiscal 2024 reinsurance policy.

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Other

The primary components of “Other” are certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, costs related to our transformation office, severance costs, non-recurring gains and losses, the elimination of intercompany transactions, and other interest income and expense.

Non-GAAP Financial Measures

In addition to our U.S. GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods:
Adjusted Financial Measure U.S. GAAP Measures
Adjusted EBIT Net earnings
Adjusted provision for income taxes Provision for income taxes
Adjusted net earnings Net earnings
Adjusted diluted earnings per share Diluted earnings per share
Adjusted effective tax rate Effective tax rate
Organic constant currency Revenues

We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations and against prior period, and to plan for future periods by focusing on our underlying operations. 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 management and improves their ability to understand and assess our operating performance.  The nature of these exclusions is for specific items that are not fundamental to our underlying business operations.  Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.
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Three Months Ended % Change Six Months Ended % Change
December 31, December 31,
2024 2023 As Reported 2024 2023 As Reported
Net earnings $ 963.2 $ 878.4 10 % $ 1,919.5 $ 1,737.8 10 %
Adjustments:
Provision for income taxes 298.1 265.4 578.0 498.8
All other interest expense (a) 29.6 17.8 50.1 35.8
All other interest income (a) (18.9) (17.2) (42.8) (35.4)
Transformation initiatives — 2.7 — 3.4
Legal settlements (b) — — (0.3) —
Adjusted EBIT $ 1,272.0 $ 1,147.1 11 % $ 2,504.5 $ 2,240.4 12 %
Adjusted EBIT Margin 25.2 % 24.6 % 25.3 % 24.4 %
Provision for income taxes $ 298.1 $ 265.4 12 % $ 578.0 $ 498.8 16 %
Adjustments:
Transformation initiatives (c) — 0.6 — 0.8
Legal settlements (c) — — (0.1) —
Adjusted provision for income taxes $ 298.1 $ 266.0 12 % $ 577.9 $ 499.6 16 %
Adjusted effective tax rate (d) 23.6 % 23.2 % 23.1 % 22.3 %
Net earnings $ 963.2 $ 878.4 10 % $ 1,919.5 $ 1,737.8 10 %
Adjustments:
Transformation initiatives — 2.7 — 3.4
Income tax (benefit)/provision for transformation initiatives (c) — (0.6) — (0.8)
Legal settlements (b) — — (0.3) —
Income tax (benefit)/provision for legal settlements (c) — — 0.1 —
Adjusted net earnings $ 963.2 $ 880.5 9 % $ 1,919.3 $ 1,740.4 10 %
Diluted EPS $ 2.35 $ 2.13 10 % $ 4.69 $ 4.20 12 %
Adjustments:
Transformation initiatives (c) — 0.01 — 0.01
Legal settlements (b) (c) — — — —
Adjusted diluted EPS $ 2.35 $ 2.13 10 % $ 4.69 $ 4.20 12 %

(a) In Adjusted EBIT, we include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”

(b) Represents a reserve reversal of a legal matter from fiscal 2023 previously recorded as an adjustment to EBIT.

(c) The income tax (benefit)/provision was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.

(d) The Adjusted effective tax rate is calculated as our Adjusted provision for income taxes divided by the sum of our Adjusted net earnings plus our Adjusted provision for income taxes.

The following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction. The impact of foreign currency is determined by calculating the current year result using foreign exchange rates consistent with the prior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency.
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Three Months Ended Six Months Ended
December 31, December 31,
2024 2024
Consolidated revenue growth as reported 8 % 8 %
Adjustments:
Impact of acquisitions
(1) % — %
Impact of foreign currency
— % — %
Consolidated revenue growth, organic constant currency 8 % 7 %
Employer Services revenue growth as reported 8 % 8 %
Adjustments:
Impact of acquisitions
(1) % (1) %
Impact of foreign currency
— % — %
Employer Services revenue growth, organic constant currency 7 % 7 %
Note: Numbers may not foot due to rounding.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCE S

At December 31, 2024, cash and cash equivalents were $2.2 billion, which were primarily invested in time deposits and money market funds.

For corporate liquidity, we expect existing cash, cash equivalents, marketable securities, cash flow from operations together with our $10.3 billion of co mmitted credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities such as regular quarterly dividends, share repurchases, acquisitions and capital expenditures for the foreseeable future. Our financial condition remains solid at December 31, 2024 and we have sufficient liquidity.

For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements ($7.3 billion of which is available on a committed basis in the U.S.), together with our $10.3 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations. Please see “Quantitative and Qualitative Disclosures about Market Risk” for a further discussion of the risks related to our client funds extended investment strategy. See Note 10 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper.






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Operating, Investing and Financing Cash Flows

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows for the six months ended December 31, 2024 and 2023, respectively, are summarized as follows:
Six Months Ended
December 31,
2024 2023 $ Change
Cash provided by / (used in):
Operating activities $ 1,974.7 $ 1,358.9 $ 615.8
Investing activities (2,902.3) (77.8) (2,824.5)
Financing activities 7,482.5 3,816.1 3,666.4
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents (36.7) 10.6 (47.3)
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents $ 6,518.2 $ 5,107.8 $ 1,410.4

Net cash flows provided by operating activities increased due to favorable changes in the components of working capital and an increase in growth in our business, as compared to the six months ended December 31, 2023.

Net cash flows used in investing activities changed due to the acquisition of Workforce Software with a cash disbursement of $1,160.6 million and the timing of purchases and proceeds of corporate and client funds marketable securities of $1,664.3 million.

Net cash flows used in financing activities changed due to a net increase in the cash flow from client funds obligations of $3,668.5 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, along with proceeds from the issuance of debt, offset by a net decrease in cash distributed from the Internal Revenue Service as of December 31, 2024, which was refunded to our clients, repurchases of common stock, dividends paid, and proceeds related to reverse repurchase agreements.

From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. 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. We purchased approximately 2.4 million shares of our common stock at an average price per sha re o f $274.42 duri ng the six months ended December 31, 2024, as compared to purchases of 2.1 million shares at an average price per share of $238.29 during the six months ended December 31, 2023.

Capital Resources and Client Funds Obligations

We have $4.0 billion of senior unsecured notes with maturity dates in 2025, 2028, 2030 and 2034. We may from time to time revisit the long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all. See Note 11 of our Consolidated Financial Statements for a description of our long-term financing.

Our U.S. short-term funding requirements primarily related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. This commercial paper program provides for the issuance of up to $10.3 billion in aggregate maturity value. Our commercial paper program is rated A-1+ by St andard & Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At December 31, 2024 and June 30, 2024, the Compa ny had no comm ercial paper borrowing outstanding. Details of the borrowings under the commercial paper program are as follows:
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Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Average daily borrowings (in billions) $ 4.5 $ 3.9 $ 4.7 $ 4.0
Weighted average interest rates 4.8 % 5.4 % 5.1 % 5.3 %
Weighted average maturity (approximately in days) 2 days 2 days 2 days 2 days

Our U.S., Canadian, and United Kingdom 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 obligatio ns. We have $7.3 billion available to us on a committed basis under the U.S. reverse repurchase agreements. At December 31, 2024, the Company had no outstanding obligations related to reverse repurchase agreements. At June 30, 2024, the Company had $385.4 million of outstanding obligations related to reverse repurchase agreements which were fully paid in early July 2024. Details of the reverse repurchase agreements are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Average outstanding balances (in billions) $ 3.7 $ 2.4 $ 3.7 $ 1.9
Weighted average interest rates 4.8 % 5.4 % 5.0 % 5.4 %

We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $4.55 billion, 364-day credit agreement that matures in June 2025 with a one year term-out option. In addition, we have a five-year $2.25 billion credit facility and a five-year $3.5 billion credit facility maturing in June 2028 and June 2029, respectively, each with an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments. 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 December 31, 2024 under the credit facilities. 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 $10.3 billion available to us under the revolving credit agreements. See Note 10 of our Consolidated Financial Statements for a description of our short-term financing, including credit facilities.

Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, and equipment lease receivables, secured predominantly by prime collateral. All collateral on asset-backed securities has performed as expected through December 31, 2024. In addition, we own U.S. government securities which primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks. 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. See Note 7 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.

Capital expenditures for the six months ended December 31, 2024 were $98.2 million, as compared to $94.0 million for the six months ended December 31, 2023. We expect capital expenditures in fiscal 2025 to be between $180 million and $200 million, as compared to $211.7 million in fiscal 2024.


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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, marketable securities) and client funds assets (funds that have been collected from clients but have not yet been remitted to the applicable tax authorities or client employees).

Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities. These assets are available for our regular quarterly dividends, share repurchases, capital expenditures and/or acquisitions, as well as other corporate operating purposes. All of our short-term and long-term fixed-income securities are classified as available-for-sale securities.

Our client funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Client funds assets are invested in highly liquid, investment-grade marketable securities, with a maximum maturity of 10 years at the time of purchase, and money market securities and other cash equivalents.
We utilize a strategy by which we extend the maturities of our investment portfolio for funds held for clients and employ short-term financing arrangements to satisfy our short-term funding requirements related to client funds obligations. 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). As part of our client funds investment strategy, we use the daily collection of funds from our clients to satisfy other unrelated client funds obligations, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. In circumstances where we experience a reduction in employment levels due to a slowdown in the economy, we may make tactical decisions to sell certain securities or not reinvest maturing securities in order to reduce the size of the funds held for clients to correspond to client funds obligations. We minimize the risk of not having funds collected from a client available at the time such client’s obligation becomes due by impounding, in virtually all instances, the client’s funds in advance of the timing of payment of such client’s obligation. As a result of this practice, we have consistently maintained the required level of client funds assets to satisfy all of our obligations.

There are inherent risks and uncertainties involving our investment strategy relating to our client funds assets. Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our client funds obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our client funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our client funds obligations by consistently maintaining access to other sources of liquidity, including our corporate cash balances, available borrowings under our $10.3 billion commercial paper program (rated A-1+ by Standard and Poor’s, P-1 by Moody’s, and F1+ by Fitch, the highest possible short-term credit ratings), and our ability to engage in reverse repurchase agreement transactions ($7.3 billion of which is available on a committed basis in the U.S.) and available borrowings under our $10.3 billion committed credit facilities. The reduced availability of financing during periods of economic turmoil, even to borrowers with the highest credit ratings, may limit our ability to access short-term debt markets to meet the liquidity needs of our business. In addition to liquidity risk, our investments are subject to interest rate risk and credit risk, as discussed below.

We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating at time of purchase for Corporate, Canadian government agency and Canadian provincial bonds is BBB, for asset-backed securities is AAA, and for municipal bonds is A. The maximum maturity at time of purchase for BBB-rated securities is 5 years, and for single A rated securities, AA-rated and AAA-rated securities is 10 years. Time deposits and commercial paper must be rated A-1 and/or P-1. Money market funds must be rated AAA/Aaa-mf.

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Details regarding our overall investment portfolio are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2024 2023 2024 2023
Average investment balances at cost:
Corporate investments $ 9,964.9 $ 7,823.0 $ 10,317.3 $ 7,475.7
Funds held for clients 35,281.9 32,646.3 34,034.4 31,887.8
Total $ 45,246.8 $ 40,469.3 $ 44,351.7 $ 39,363.5
Average interest rates earned exclusive of realized
(gains)/losses on:
Corporate investments 3.4 % 2.9 % 3.4 % 2.8 %
Funds held for clients 3.1 % 2.8 % 3.1 % 2.7 %
Total 3.2 % 2.8 % 3.2 % 2.7 %
Net realized losses on available-for-sale securities $ 0.6 $ 2.0 $ 0.8 $ 4.0
December 31, 2024 June 30, 2024
Net unrealized pre-tax losses on available-for-sale securities $ (1,074.5) $ (1,515.8)
Total available-for-sale securities at fair value $ 33,019.9 $ 31,207.5
We are exposed to interest rate risk in relation to securities that mature, as the proceeds from maturing securities are reinvested. Factors that influence the earnings impact of interest rate changes include, among others, the amount of invested funds and the overall portfolio mix between short-term and long-term investments. This mix varies during the fiscal year and is impacted by daily interest rate changes. The annu alized interest rate earned on our entire p ortfolio increased from 2.7% for the six months ended December 31, 2023 to 3.2% for the six months ended December 31, 2024. A hypothetical change in both short-term interest rates (e.g., overnight interest rates or the federal funds rate) and intermediate-term interest rates of 25 basis points applied to the estimated average investment balances and any related short-term borrowings would result in approximately a $20 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2025. A hypothetical change in only short-term interest rates of 25 basis points applied to the estimated average short-term investment balances and any related short-term borrowings would result in approximately a $9 million impact to earnings before income taxes over the ensuing twelve-month period ending December 31, 2025.

We are exposed to credit risk in connection with our available-for-sale securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade securities, primarily AAA-rated and AA- rated securities, as rated by Moody’s, Standard & Poor’s, DBRS for Canadian dollar denominated securities, and Fitch for asset-backed and commercial-mortgage-backed securities. In addition, we limit amounts that can be invested in any security other than U.S. government and government agency, Canadian government, and United Kingdom government securities.

We operate and transact business in various foreign jurisdictions and are therefore exposed to market risk from changes in foreign currency exchange rates that could impact our consolidated results of operations, financial position, or cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We may use derivative financial instruments as risk management tools and not for trading purposes.

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CRITICAL ACCOUNTING POLICIES

Our Consolidated Financial Statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and other comprehensive income. We continually evaluate the accounting policies and estimates used to prepare the Consolidated Financial Statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Refer to Note 2 of our Consolidated Financial Statements for changes to our accounting policies effective for the fiscal 2025.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2, New Accounting Pronouncements, of Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures about Market Risk” under Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 4.  Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “evaluation”).  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on the evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of December 31, 2024 in ensuring that (i) information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

There was no change in the Company's internal control over financial reporting that occurred during the three months ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.  OTHER INFORMATION

Except as noted below, all other items are either inapplicable or would result in negative responses and, therefore, have been omitted.

Item 1.  Legal Proceedings

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

With respect to the disclosure of administrative or judicial proceedings arising under any Federal, State, or local provisions regulating the discharge of materials into the environment or that are primarily for the purpose of protecting the environment, the Company has determined that the following threshold is reasonably designed to result in disclosure of any such proceeding that is material to its business or financial condition: any proceeding when the potential monetary sanctions exceed $1 million.

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Item 1A.  Risk Factors

There have been no material changes in our risk factors disclosed in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
Total Number
of Shares Purchased (1) 		Average Price
Paid per Share (3) 		Total Number of
Shares Purchased
as Part of the
Publicly
Announced
Common Stock Repurchase Plan (2) 		Maximum Approximate Dollar Value
of Shares that
may yet be
Purchased under
the Common Stock
Repurchase Plan (2) (3)
Period
October 1 to 31, 2024 298,902 $ 288.95 298,829 $ 2,619,779,352
November 1 to 30, 2024 291,632 $ 303.82 290,708 $ 2,531,459,636
December 1 to 31, 2024 336,248 $ 300.00 332,671 $ 2,431,630,798
Total 926,782 922,208

(1)
During the three months ended December 31, 2024, pursuant to the terms of the Company’s restricted stock program, the Company purchased 4,574 shares at the then-market value of the shares to satisfy certain tax withholding requirements for employees upon the vesting of their restricted shares.
(2) The Company received the Board of Directors' approval in November 2022 to repurchase $5 billion of its common stock.
(3) Inclusive of the impact of the one-percent excise tax under the Inflation Reduction Act of 2022.

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

Item 5.  Other Information

(a) In connection with his previously announced departure from Automatic Data Processing, Inc. (the “Company”) on March 31, 2025, John C. Ayala entered into a separation agreement and release (“agreement”), dated January 27, 2025. His departure constitutes a “Qualifying Termination” as defined under the Company’s Corporate Officer Severance Plan (the “Plan”) and the agreement sets forth the terms of his separation and release in accordance with the Plan. A copy of the separation agreement and release is filed as Exhibit 10.1 hereto and incorporated herein by reference.

(c) During the fiscal quarter ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”.

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Item 6.  Exhibits
Exhibit Number
Exhibit
Separation Agreement and Release, dated January 27, 2025, by and between John C. Ayala and Automatic Data Processing, Inc.
Certification by Maria Black pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
Certification by Don McGuire pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
Certification by Maria Black pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification by Don McGuire pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB Inline XBRL Taxonomy Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Document
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AUTOMATIC DATA PROCESSING, INC.
(Registrant)
Date: January 30, 2025
/s/ Don McGuire
Don McGuire
Chief Financial Officer
(Title)

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