Company Quick10K Filing
Automatic Data Processing
Price163.27 EPS5
Shares435 P/E30
MCap71,088 P/FCF32
Net Debt-198 EBIT3,232
TEV70,890 TEV/EBIT22
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-01
10-Q 2019-12-31 Filed 2020-01-31
10-Q 2019-09-30 Filed 2019-11-04
10-K 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-03
10-Q 2018-12-31 Filed 2019-01-31
10-Q 2018-09-30 Filed 2018-11-01
10-K 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-Q 2017-12-31 Filed 2018-02-01
10-Q 2017-09-30 Filed 2017-11-02
10-K 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-04
10-Q 2016-12-31 Filed 2017-02-01
10-Q 2016-09-30 Filed 2016-11-03
10-K 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-05
10-Q 2015-12-31 Filed 2016-02-03
10-Q 2015-09-30 Filed 2015-11-05
10-K 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-06
10-Q 2014-12-31 Filed 2015-02-05
10-Q 2014-09-30 Filed 2014-10-30
10-K 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-01
10-Q 2013-12-31 Filed 2014-02-05
10-Q 2013-09-30 Filed 2013-11-01
10-K 2013-06-30 Filed 2013-08-19
10-Q 2013-03-31 Filed 2013-05-03
10-Q 2012-12-31 Filed 2013-02-06
10-Q 2012-09-30 Filed 2012-11-02
10-K 2012-06-30 Filed 2012-08-20
10-Q 2012-03-31 Filed 2012-05-04
10-Q 2011-12-31 Filed 2012-02-07
10-Q 2011-09-30 Filed 2011-11-04
10-K 2011-06-30 Filed 2011-08-24
10-Q 2011-03-31 Filed 2011-05-06
10-Q 2010-12-31 Filed 2011-02-09
10-Q 2010-09-30 Filed 2010-11-04
10-K 2010-06-30 Filed 2010-08-25
10-Q 2010-03-31 Filed 2010-05-06
10-Q 2009-12-31 Filed 2010-02-09
8-K 2020-07-29 Earnings, Exhibits
8-K 2020-06-10
8-K 2020-04-29
8-K 2020-04-08
8-K 2020-03-23
8-K 2020-03-12
8-K 2020-02-27
8-K 2020-01-29
8-K 2019-11-12
8-K 2019-10-30
8-K 2019-07-31
8-K 2019-06-12
8-K 2019-05-15
8-K 2019-05-01
8-K 2019-03-01
8-K 2019-01-30
8-K 2018-11-06
8-K 2018-10-31
8-K 2018-08-01
8-K 2018-06-13
8-K 2018-06-12
8-K 2018-06-12
8-K 2018-06-07
8-K 2018-05-31
8-K 2018-05-02
8-K 2018-04-18
8-K 2018-03-01
8-K 2018-01-31

ADP 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. New Accounting Pronouncements
Note 3. Revenue
Note 4. Earnings per Share ("Eps")
Note 5. Other Income, Net
Note 6. Corporate Investments and Funds Held for Clients
Note 7. Leases
Note 8. Goodwill and Intangible Assets, Net
Note 9. Short - Term Financing
Note 10. Debt
Note 11. Employee Benefit Plans
Note 12. Income Taxes
Note 13. Commitments and Contingencies
Note 14. Stockholders' Equity
Note 15. Reclassifications Out of Accumulated Other Comprehensive Income ("Aoci")
Note 16. Interim Financial Data By Segment
Note 17. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits
EX-31.1 exhibit311ceoq3fy20.htm
EX-31.2 exhibit312cfoq3fy20.htm
EX-32.1 exhibit321ceoq3fy20.htm
EX-32.2 exhibit322cfoq3fy20.htm

Automatic Data Processing Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
554433221102012201420172020
Assets, Equity
3.93.12.31.60.80.02012201420172020
Rev, G Profit, Net Income
1593-3-9-152012201420172020
Ops, Inv, Fin

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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 March 31, 2020

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)
__________________________
Delaware22-1467904
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
One ADP Boulevard
Roseland,NJ07068
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 Par Value
(voting)
ADPNASDAQ 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 FilerAccelerated filer
Non-accelerated filerSmaller 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).YesNo
The number of shares outstanding of the registrant’s common stock as of April 28, 2020 was 429,774,376.



Table of Contents
  Page
 
   
Item 1.
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
  
 
   
Item 1.
   
Item 1A.
   
Item 2.
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 EndedNine Months Ended
March 31,March 31,
2020201920202019
REVENUES:    
Revenues, other than interest on funds held
for clients and PEO revenues
$2,652.1  $2,546.9  $7,356.7  $7,084.7  
Interest on funds held for clients158.9  167.4  430.4  415.0  
PEO revenues (A)1,236.8  1,113.9  3,425.9  3,131.2  
TOTAL REVENUES4,047.8  3,828.2  11,213.0  10,630.9  
EXPENSES:    
Costs of revenues:    
Operating expenses1,974.1  1,855.3  5,597.8  5,324.8  
Systems development and programming costs172.1  160.1  509.0  474.2  
Depreciation and amortization92.9  77.2  271.2  221.5  
TOTAL COSTS OF REVENUES2,239.1  2,092.6  6,378.0  6,020.5  
Selling, general, and administrative expenses756.6  750.4  2,237.4  2,209.4  
Interest expense20.0  21.7  91.5  96.2  
TOTAL EXPENSES3,015.7  2,864.7  8,706.9  8,326.1  
Other income, net(44.6) (21.0) (145.2) (67.5) 
EARNINGS BEFORE INCOME TAXES1,076.7  984.5  2,651.3  2,372.3  
Provision for income taxes255.8  230.8  596.4  554.9  
NET EARNINGS$820.9  $753.7  $2,054.9  $1,817.4  
BASIC EARNINGS PER SHARE$1.91  $1.74  $4.76  $4.17  
DILUTED EARNINGS PER SHARE$1.90  $1.73  $4.74  $4.15  
Basic weighted average shares outstanding430.0  434.1  431.4  435.5  
Diluted weighted average shares outstanding431.8  436.6  433.5  438.1  

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $12,643.6 million and $10,798.3 million for the three months ended March 31, 2020 and 2019, respectively, and $35,525.8 million and $32,178.8 million for the nine months ended March 31, 2020 and 2019, 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 EndedNine Months Ended
March 31,March 31,
2020201920202019
Net earnings$820.9  $753.7  $2,054.9  $1,817.4  
Other comprehensive income/(loss):
Currency translation adjustments(68.4) (2.3) (83.0) (49.9) 
Unrealized net gains/(losses) on available-for-sale securities139.3  259.0  199.9  377.0  
Tax effect(32.2) (58.0) (45.4) (84.8) 
Reclassification of net (gain)/losses on available-for-sale securities to net earnings(2.5) (0.1) (11.9) 1.4  
Tax effect0.6    2.6  (0.2) 
   Unrealized loss on cash flow hedging activities(38.2)   (37.4)   
        Tax effect9.5    9.2    
Reclassification of pension liability adjustment to net earnings(15.0) 6.1  (14.8) 32.5  
Tax effect3.7  (1.6) 3.7  (8.1) 
Other comprehensive income/(loss), net of tax(3.2) 203.1  22.9  267.9  
Comprehensive income$817.7  $956.8  $2,077.8  $2,085.3  



























See notes to the Consolidated Financial Statements.
4


Automatic Data Processing, Inc. and Subsidiaries
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
March 31,June 30,
20202019
Assets
Current assets:  
Cash and cash equivalents$1,705.0  $1,949.2  
Short-term marketable securities 3.2  10.5  
Accounts receivable, net of allowance for doubtful accounts of $84.8 and $54.9, respectively
2,620.6  2,439.3  
Other current assets 545.5  509.1  
Total current assets before funds held for clients4,874.3  4,908.1  
Funds held for clients30,834.4  29,434.2  
Total current assets35,708.7  34,342.3  
Long-term receivables, net of allowance for doubtful accounts of $0.6 and $0.4, respectively
21.6  23.8  
Property, plant and equipment, net743.1  764.2  
Operating lease right-of-use asset521.1    
Deferred contract costs2,403.0  2,428.5  
Other assets579.9  934.4  
Goodwill2,299.3  2,323.0  
Intangible assets, net1,106.7  1,071.5  
Total assets$43,383.4  $41,887.7  
Liabilities and Stockholders' Equity  
Current liabilities:  
Accounts payable$115.5  $125.5  
Accrued expenses and other current liabilities1,978.7  1,759.0  
Accrued payroll and payroll-related expenses564.0  721.1  
Dividends payable387.9  340.1  
Short-term deferred revenues215.8  220.7  
Obligations under reverse repurchase agreements (A)  262.0  
Short-term debt1,001.8    
Income taxes payable50.1  54.8  
Total current liabilities before client funds obligations4,313.8  3,483.2  
Client funds obligations30,359.0  29,144.5  
Total current liabilities34,672.8  32,627.7  
Long-term debt1,002.8  2,002.2  
Operating lease liabilities361.2    
Other liabilities745.6  798.7  
Deferred income taxes732.2  659.9  
Long-term deferred revenues378.1  399.3  
Total liabilities37,892.7  36,487.8  
Commitments and contingencies (Note 13)
Stockholders' equity:  
Preferred stock, $1.00 par value: authorized, 0.3 shares; issued, none
    
Common stock, $0.10 par value: authorized, 1,000.0 shares; issued, 638.7 shares at March 31, 2020 and June 30, 2019;
 outstanding, 429.8 and 434.2 shares at March 31, 2020 and June 30, 2019, respectively
63.9  63.9  
Capital in excess of par value1,315.1  1,183.2  
Retained earnings18,416.5  17,500.6  
Treasury stock - at cost: 208.9 and 204.5 shares at March 31, 2020 and June 30, 2019, respectively
(14,070.4) (13,090.5) 
Accumulated other comprehensive loss(234.4) (257.3) 
Total stockholders’ equity5,490.7  5,399.9  
Total liabilities and stockholders’ equity$43,383.4  $41,887.7  

(A) As of June 30, 2019, $261.4 million of long-term marketable securities and $0.6 million of cash and cash equivalents have been pledged as collateral under the Company's reverse repurchase agreements. Refer to Note 9.


See notes to the Consolidated Financial Statements.
5

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


Nine Months Ended
March 31,
20202019
Cash Flows from Operating Activities:  
Net earnings  $2,054.9  $1,817.4  
Adjustments to reconcile net earnings to cash flows provided by operating activities:    
Depreciation and amortization  355.5  299.6  
Amortization of deferred contract costs  687.4  655.2  
Deferred income taxes  57.7  4.1  
Stock-based compensation expense  106.7  122.2  
Net pension expense  (14.6) 41.0  
Net amortization of premiums and accretion of discounts on available-for-sale securities  40.7  38.9  
Impairment of intangible assets    12.1  
Gain on sale of assets  (2.1) (4.1) 
Other  44.9  25.3  
Changes in operating assets and liabilities, net of effects from acquisitions:    
Increase in accounts receivable  (281.6) (526.7) 
Increase in other assets  (762.3) (748.9) 
(Decrease) / increase in accounts payable (3.6) 25.4  
(Decrease) / increase in accrued expenses and other liabilities (34.0) 194.5  
Net cash flows provided by operating activities  2,249.6  1,956.0  
Cash Flows from Investing Activities:    
Purchases of corporate and client funds marketable securities  (3,894.6) (2,725.8) 
Proceeds from the sales and maturities of corporate and client funds marketable securities  4,749.9  2,090.6  
Capital expenditures  (139.3) (120.3) 
Additions to intangibles  (261.0) (329.9) 
Acquisitions of businesses, net of cash acquired    (120.4) 
Proceeds from the sale of property, plant, and equipment and other assets  23.6  7.9  
Net cash flows provided by / (used in) investing activities 478.6  (1,197.9) 
Cash Flows from Financing Activities:    
Net increase in client funds obligations  1,351.5  8,612.0  
Payments of debt  (1.6) (1.6) 
Repurchases of common stock  (1,006.3) (760.6) 
Net proceeds from stock purchase plan and stock-based compensation plans  33.3  50.5  
Dividends paid  (1,078.9) (949.6) 
Net payments of reverse repurchase agreements  (262.0)   
Other    (5.3) 
Net cash flows (used in) / provided by financing activities (964.0) 6,945.4  
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents  (41.4) (34.1) 
Net change in cash, cash equivalents, restricted cash, and restricted cash equivalents  1,722.8  7,669.4  
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period  6,796.2  6,542.1  
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period  $8,519.0  $14,211.5  
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the Consolidated Balance Sheets  
Cash and cash equivalents  $1,705.0  $1,826.2  
Restricted cash and restricted cash equivalents included in funds held for clients (A) 6,814.0  12,385.3  
Total cash, cash equivalents, restricted cash, and restricted cash equivalents  $8,519.0  $14,211.5  
Supplemental disclosures of cash flow information:  
Cash paid for interest  $103.8  $108.6  
Cash paid for income taxes, net of income tax refunds  $520.2  $437.7  

(A) See Note 6 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 6, “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, 2019 (“fiscal 2019”).

Revision of Previously Reported Financial Information

The Company has historically classified certain fees collected from worksite employers for certain benefits within PEO revenues, and the associated costs of these benefits have historically been classified within operating expenses as PEO zero-margin benefits pass-through costs in the Company's Statements of Consolidated Earnings. During the quarter ended September 30, 2019, management determined that the Company does not retain risk and is acting as the agent, rather than as the primary obligor, for a portion of the fees collected for worksite employee benefits and the worksite employer is primarily responsible for fulfilling certain aspects of the service and has discretion in establishing price. Accordingly, the accompanying Statements of Consolidated Earnings for the three and nine months ended March 31, 2019 have been revised to correct the amounts previously reported on a gross basis to a net basis by reducing PEO revenues and operating expenses for associated costs of an equal amount, as follows:
Three Months Ended
March 31, 2019
As reportedRevisionAs revised
PEO revenues  $1,133.1  (19.2) $1,113.9  
TOTAL REVENUES  3,847.4  (19.2) 3,828.2  
Operating expenses  1,874.5  (19.2) 1,855.3  
Total Expenses  2,883.9  (19.2) 2,864.7  
EARNINGS BEFORE INCOME TAXES  984.5    984.5  
Provision for income taxes  230.8    230.8  
NET EARNINGS  $753.7    $753.7  

7


Nine Months Ended
March 31, 2019
As reportedRevisionAs revised
PEO revenues  $3,176.8  (45.6) $3,131.2  
TOTAL REVENUES  10,676.5  (45.6) 10,630.9  
Operating expenses  5,370.4  (45.6) 5,324.8  
Total Expenses  8,371.7  (45.6) 8,326.1  
EARNINGS BEFORE INCOME TAXES  2,372.3    2,372.3  
Provision for income taxes  554.9    554.9  
NET EARNINGS  $1,817.4    $1,817.4  

The correction of these previously reported amounts had no impact on the Company's earnings before income taxes, net earnings, consolidated financial condition or cash flows. In addition, corresponding revisions have been made elsewhere in the Company's consolidated footnote disclosures, where applicable, including its Interim Financial Data by Segment disclosure.

Note 2.  New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective July 1, 2019, the Company adopted accounting standard update (“ASU”) 2016-02, “Leases (ASC 842)” under the optional transition method. As a result, the Company recorded on the Consolidated Balance Sheets total operating lease right-of-use (“ROU”) assets of $573.3 million and total operating lease liabilities of $522.6 million, as of the adoption date. The adoption did not have an impact on our Statements of Consolidated Earnings or Statements of Consolidated Cash Flows. Refer to Note 7 for further details.



















8


Recently Issued Accounting Pronouncements
The following table summarizes recent ASU's issued by the Financial Accounting Standards Board (“FASB”) which have been assessed:
StandardDescriptionEffective DateEffect on Financial Statements or Other Significant Matters
ASU 2020-04 Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate (LIBOR) reform on financial reporting. March 12, 2020
(Fiscal 2020) through
December 31, 2022
(Fiscal 2023)
The Company is assessing the effects of the Reference Rate Reform. The Company has not yet determined the impact of this ASU on its consolidated results of operations, financial condition, or cash flows.
ASU 2018-14 Compensation-Retirement Benefits-Defined Benefit PlansThis update modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. The amendments in ASU 2018-14 would need to be applied on a retrospective basis. July 1, 2021
(Fiscal 2022)
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
ASU 2018-13 Fair Value MeasurementThis update modifies the disclosure requirements on fair value measurements. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis.July 1, 2020
(Fiscal 2021)
The adoption of this guidance will modify disclosures but will not have an impact on the Company's consolidated results of operations, financial condition, or cash flows.
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsThis update introduces the current expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. In addition, this update modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. In November 2019, the FASB issued Accounting Standard Update 2019-11 Codification Improvements to Topic 326, Financial-Credit Losses which provides clarification and eliminates inconsistencies to amendments included in Update 2016-13.July 1, 2020
(Fiscal 2021)
The Company is evaluating the impact of this ASU on its consolidated results of operations, financial condition, or cash flows.

9


Note 3.  Revenue

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

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

HRO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment insurance, among other human resources functions. This revenue is primarily driven by the PEO. Amounts collected from PEO worksite employers include payroll, fees for benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment taxes. The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company does not retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is primarily responsible for providing the service and has discretion in establishing wages. The fees collected from the worksite employers for benefits (i.e., PEO benefits pass-throughs), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company acts as a principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for fulfilling the service and has discretion in establishing price. The Company has further disaggregated HRO to separate out its PEO zero-margin benefits pass-through revenues.

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

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