AUTOMATIC DATA PROCESSING, INC. FORWARD-LOOKING STATEMENTS
This document and other written or oral statements made from time to time byAutomatic 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 "expects," "assumes," "projects," "anticipates," "estimates," "we believe," "could" and other words of similar meaning, are forward-looking statements. These statements are based on management's expectations and assumptions and 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; 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; 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; changes in technology; availability of skilled technical 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, including the coronavirus ("COVID-19") pandemic. 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 endedJune 30, 2020 ("fiscal 2020"), 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 ourU.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. 24 --------------------------------------------------------------------------------
EXECUTIVE OVERVIEW
Highlights from the nine months ended
Flat Flat 1%
Revenue Growth Earnings Before Income Taxes Margin Diluted EPS Growth
Expansion
Flat Flat 1%
Organic Constant Adjusted EBIT Margin Expansion Adjusted Diluted EPS
Currency Growth
Revenue Growth
Employer Services PEO Services
1% New Business Bookings Growth (2)% Average Worksite Employee Growth
Cash Returned via Shareholder Friendly Actions
$2.1B $1.2B Dividends | $0.9B Share Repurchases
We are a leading global provider of cloud-based Human Capital Management ("HCM")
technology solutions to employers around the world. The global COVID-19 pandemic
has had a significant impact on the global business environment and on our
clients, but our priority has been and continues to be the safety of our
associates and the needs of our clients. We have continued to provide HCM
services, including the processing of payroll and tax obligations, to our
clients during this time. ADP's efforts have also been focused on providing
information and tools to help clients understand and navigate the governmental
relief that has been adopted globally. In addition, we released a Return to
Workplace solution that assists our clients in bringing their employees back to
work safely through a comprehensive set of tools designed to streamline the
entire process.
We continue to execute well as we start to lap the impact of the pandemic. This
quarter, our Employer Services new business bookings reaccelerated and we
delivered 7% growth in the quarter, which resulted in 1% growth for the nine
months ended March 31, 2021 . We ended the quarter on a particularly strong note
with record March bookings performance in Employer Services, well above
pre-pandemic fiscal 2019 levels, which we see as a positive signal for client
decision-making in the quarters ahead. 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, was slightly lower than expected as it remained
relatively flat from the 6% decline in the prior quarter and rounded to a
decline of 7% in the nine months ended March 31, 2021 . The PEO average number of
Worksite Employees was flat on a year-over-year basis for the three months ended
March 31, 2021 and decreased 2% for the nine months ended March 31, 2021 . We
continue to invest in headcount to support our growing client base, while
focusing on prudent cost control and continuing to execute well on our
transformation initiatives.
We continue to drive innovation by anticipating our clients' evolving needs and
always designing for people as the world of work changes. We lead the HCM
industry by driving growth through our strategic, cloud-based HCM solutions and
developing innovations like our next gen platforms. We further enable these
solutions by supplementing them with organic, differentiated investments such as
the ADP Marketplace and ADP Datacloud, and through our compliance expertise. The
recognition we have received in the market for our next gen payroll platform and
in winning the 2020 HR Executive 'Top HR Product' award reflect our commitment
to innovation and strong execution by our associates.
We have a strong business model, a highly cash generative business with low
capital intensity, and we offer a suite of products that provide critical HCM
support to our clients. 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 product investments, our longer
term strategy, and our 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
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operational transformation. Our financial condition remains solid at
RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS
Total Revenues
For the three months and nine months ended
[[Image Removed: adp-20210331_g1.jpg]][[Image Removed: adp-20210331_g2.jpg]]
Growth: á 1% Flat
Organic constant currency: á 1% Flat
Revenues for the three months ended March 31, 2021 increased due to an increase
in zero-margin benefits pass-throughs, partially offset by one percentage point
of pressure from our interest earned on funds held for clients, discussed below.
Revenues for the nine months ended March 31, 2021 were flat due to strong
retention, new business started from New Business Bookings and an increase in
zero-margin benefits pass-throughs, offset by one percentage point of pressure
from our interest earned on funds held for clients discussed below and a
decrease in our pays per control. Refer to "Analysis of Reportable Segments" for
additional discussion of the changes in revenue for both of our reportable
segments, Employer Services and Professional Employer Organization ("PEO")
Services, respectively.
Total revenues for the three months ended March 31, 2021 include interest on
funds held for clients of $107.4 million , as compared to $158.9 million for the
three months ended March 31, 2020 . The decrease in the interest earned on funds
held for clients resulted from the decrease in our average interest rate earned
to 1.3% for the three months ended March 31, 2021 , as compared to 2.0% for the
three months ended March 31, 2020 . The decrease was partially offset by an
increase in our average client funds balances of 6.0% to $33.2 billion for the
three months ended March 31, 2021 , as compared to the three months ended
March 31, 2020 .
Total revenues for the nine months ended March 31, 2021 include interest on
funds held for clients of $319.2 million , as compared to $430.4 million for the
nine months ended March 31, 2020 . The decrease in the interest earned on funds
held for clients resulted from the decrease in our average interest rate earned
to 1.6% for the nine months ended March 31, 2021 , as compared to 2.2% for the
nine months ended March 31, 2020 .
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Total Expenses
Three Months Ended Nine Months Ended
March 31, March 31,
% %
2021 2020 Change 2021 2020 Change
Costs of revenues:
Operating expenses $ 1,999.5 $ 1,974.1 1 % $ 5,609.5 $ 5,597.8 - %
Systems development and programming
costs 178.6 172.1 4 % 521.8 509.0 3 %
Depreciation and amortization 100.0 92.9 8 % 303.5 271.2 12 %
Total costs of revenues 2,278.1 2,239.1 2 % 6,434.8 6,378.0 1 %
Selling, general and administrative
expenses 763.0 756.6 1 % 2,199.8 2,237.4 (2) %
Interest expense 13.5 20.0 (33) % 42.4 91.5 (54) %
Total expenses $ 3,054.6 $ 3,015.7 1 % $ 8,677.0 $ 8,706.9 - %
For the three months ended March 31, 2021 , operating expenses increased due to
an increase in PEO zero-margin benefits pass-through costs to $784.7 million
from $747.9 million for the three months ended March 31, 2021 and 2020,
respectively, and the impact of foreign currency. The increases were partially
offset by reduced costs from certain cost and headcount actions as a result of
our broad-based transformation initiatives, including digital and procurement
transformation initiatives ("broad-based transformation initiatives") and
reduced costs from excess capacity headcount actions. Additionally, increases
were further offset by decreases in incentive compensation due to a one-time
global associate assistance payment in response to COVID-19 in the three months
ended March 31, 2020 .
For the nine months ended March 31, 2021 , operating expenses were flat due to an
increase in our PEO Services zero-margin benefits pass-through costs to $2,291.7
million from $2,169.4 million for the nine months ended March 31, 2021 and 2020,
respectively, the impact of foreign currency, and an increase in incentive
compensation costs due to decreases in the prior year. These increases were
offset by reduced costs as a result of our broad-based transformation
initiatives and excess capacity headcount actions, reduced travel expenses and
decreased pension costs as a result of U.S. pension service costs that were
eliminated with the July 1, 2020 cessation of U.S. participants accruing any
future service benefits ("U.S. pension freeze").
Systems development and programming costs increased for the three and nine
months ended March 31, 2021 due to increased investments and costs to develop,
support, and maintain our products, offset by capitalization of costs related to
our strategic projects, including our next gen platforms. Depreciation and
amortization expense increased due to the amortization of our acquisitions of
intangibles and internally developed software.
Selling, general and administrative expenses increased for the three months
ended March 31, 2021 due to an increase in incentive compensation costs,
partially offset by a decrease in bad debt expense, reduced costs as a result of
our broad-based transformation initiatives and excess capacity headcount actions
for non-sales associates, and decreased selling expense as a result of reduced
travel expenses.
Selling, general and administrative expenses decreased for the nine months ended
March 31, 2021 due to decreased selling expenses as a result of reduced travel
expenses, capitalization of costs to obtain a contract under ASC 606 and reduced
marketing expenses. Expenses were further reduced as a result of our broad-based
transformation initiatives and excess capacity headcount actions for non-sales
associates and a decrease in bad debt expense. The decreases were partially
offset by an increase in incentive compensation costs and investments in our
sales organization.
Interest expense decreased for the three and nine months ended March 31, 2021
due to a decrease in average interest rates for commercial paper borrowings to
0.1% and 0.1% for the three and nine months ended March 31, 2021 , respectively,
as compared to 1.5% and 1.9% for the three and nine months ended March 31, 2020 ,
respectively. This was coupled with a decrease in average daily borrowings under
our commercial paper program to $0.7 billion and $1.6 billion for the three and
nine months ended March 31, 2021 , respectively, as compared to $1.2 billion and
$2.9 billion for the three and nine months ended March 31, 2020 , respectively.
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--------------------------------------------------------------------------------Other (Income)/Expense, net
Three Months Ended Nine Months Ended
March 31, March 31,
2021 2020 $ Change 2021 2020 $ Change
Interest income on corporate funds $ (4.7) $ (12.1) Realized (gains) / losses on available-for-sale securities, net 0.4 (2.5) (2.9) (7.6) (11.9) (4.3) Impairment of assets 2.6 - (2.6) 7.6 - (7.6) Gain on sale of assets (1.6) - 1.6 (3.4) (2.1) 1.3 Non-service components of pension income, net (15.5) (30.0) (14.5) (40.4) (61.1) (20.7) Other (income)/expense, net$ (18.8) $ (44.6) $ (25.8) $ (72.7) $ (145.2) $ (72.5) Other (income)/expense, net, decreased$25.8 million and$72.5 million for the three and nine months endedMarch 31, 2021 , respectively, as a result of a decrease in interest income on corporate funds due to lower interest rates earned and the change in non-service components of pension (income)/expense, net. See Note 11 for further details on non-service components of pension (income)/expense, net.
Earnings Before Income Taxes
For the three months ended
[[Image Removed: adp-20210331_g3.jpg]][[Image Removed: adp-20210331_g4.jpg]]
Growth: â 1% â 60bps
For the nine months ended
[[Image Removed: adp-20210331_g5.jpg]][[Image Removed: adp-20210331_g6.jpg]]
Growth: Flat Flat
Earnings before income taxes decreased for the three months ended
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Margin decreased for the three months ended March 31, 2021 as a result of an
increase in incentive compensation costs and incremental pressure from growth in
our zero-margin benefits pass-throughs. The margin decrease was partially offset
by a decrease in bad debt expense, reduced costs as a result of our broad-based
transformation initiatives and excess capacity headcount actions, decreased
selling expenses as a result of reduced travel expenses, and decreased pension
costs as a result of the U.S. pension freeze.
Margin was flat for the nine months ended March 31, 2021 due to reduced costs as
a result of our broad-based transformation initiatives and excess capacity
headcount actions, decreased selling expenses as a result of reduced travel
expenses, decreased interest expense, decreased pension costs as a result of the
U.S. pension freeze, and a decrease in bad debt expense. These were offset by an
increase in incentive compensation costs and incremental pressure from growth in
our zero-margin benefits pass-throughs.
Adjusted Earnings before certain Interest and Taxes ("Adjusted EBIT")
For the three months ended
[[Image Removed: adp-20210331_g7.jpg]][[Image Removed: adp-20210331_g8.jpg]]
Growth: â 2% â 90bps
For the nine months ended
[[Image Removed: adp-20210331_g9.jpg]][[Image Removed: adp-20210331_g10.jpg]]
Growth: Flat Flat
Adjusted EBIT and Adjusted EBIT margin exclude certain interest amounts, gain on
sale of assets, net charges related to our broad-based transformation
initiatives and the impact of the net severance charges as applicable in the
respective periods.
Provision for Income Taxes
The effective tax rate for the three months ended March 31, 2021 and 2020 was
24.0% and 23.8%, respectively. The increase in the effective tax rate is
primarily due to the benefit of a foreign tax law change in the three months
ended March 31, 2020 and a decrease in the excess tax benefit on stock-based
compensation, partially offset by higher reserves for uncertain tax positions
and foreign withholding taxes on future distributions in the three months ended
March 31, 2020 .
The effective tax rate for the nine months ended March 31, 2021 and 2020 was
22.7% and 22.5%, respectively. The increase in the effective tax rate is
primarily due to the benefit from a valuation allowance release related to
foreign tax credits carryforwards in the nine months ended March 31, 2020 and a
decrease in the excess tax benefit on stock-based compensation,
29
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partially offset by favorable adjustments to prior year tax liabilities and the
benefits from a foreign tax election in the nine months ended
Adjusted Provision for Income Taxes
The adjusted effective tax rate for the three months endedMarch 31, 2021 and 2020 was 23.9% and 23.8%, respectively. The adjusted effective tax rate for the nine months endedMarch 31, 2021 and 2020 was 22.7% and 22.5%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.
Net Earnings and Diluted EPS
For the three months ended
[[Image Removed: adp-20210331_g11.jpg]][[Image Removed: adp-20210331_g12.jpg]]
Growth: â 1% Flat
For the nine months ended
[[Image Removed: adp-20210331_g13.jpg]][[Image Removed: adp-20210331_g14.jpg]]
Growth: Flat á 1%
For the three and nine months ended March 31, 2021 , net earnings reflect the
changes described above in our earnings before income taxes and our effective
tax rate.
For the three months ended March 31, 2021 , diluted EPS was flat as a result of
fewer shares outstanding resulting from the repurchase of approximately 2.5
million shares during the three months ended March 31, 2021 and 2.5 million
shares during the three months ended March 31, 2020 , offset by the issuances of
shares under our employee benefit plans and a decrease in net earnings.
For the nine months ended March 31, 2021 , diluted EPS increased as a result of
the impact of fewer shares outstanding resulting from the repurchase of
approximately 5.7 million shares during the nine months ended March 31, 2021 and
6.2 million shares during the nine months ended March 31, 2020 , partially offset
by the issuances of shares under our employee benefit plans.
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Adjusted Net Earnings and Adjusted Diluted EPS
For the three months ended
[[Image Removed: adp-20210331_g15.jpg]][[Image Removed: adp-20210331_g16.jpg]]
Growth: â 2% â 2%
For the nine months ended
[[Image Removed: adp-20210331_g17.jpg]][[Image Removed: adp-20210331_g18.jpg]]
Growth: Flat á 1%
For the three and nine months ended
ANALYSIS OF REPORTABLE SEGMENTS
Revenues
Three Months Ended Nine Months Ended
March 31, % Change March 31, % Change
Organic Organic
As constant As constant
2021 2020 Reported currency 2021 2020 Reported currency
Employer Services $ 2,780.0 $ 2,811.7 (1) % (2) % $ 7,667.4 $ 7,790.6 (2) % (2) %
PEO Services 1,324.1 1,238.3 7 % 7 % 3,606.1 3,429.8 5 % 5 %
Other (2.1) (2.2) n/m n/m (5.1) (7.4) n/m n/m
$ 4,102.0 $ 4,047.8 1 % 1 % $ 11,268.4 $ 11,213.0 - % - %
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Earnings before Income Taxes
Three Months Ended % Nine Months Ended %
March 31, Change March 31, Change
As
2021 2020 As Reported 2021 2020 Reported
Employer Services $ 980.0 $ 1,023.7 (4) % $ 2,427.8 $ 2,469.4 (2) %
PEO Services 198.7 173.6 14 % 545.5 490.9 11 %
Other (112.5) (120.6) n/m (309.2) (309.0) n/m
$ 1,066.2 $ 1,076.7 (1) % $ 2,664.1 $ 2,651.3 - %
n/m - not meaningful
Employer Services
Revenues
Revenues decreased for the three months ended March 31, 2021 due to two
percentage points of pressure from our interest earned on funds held for clients
and a decrease in our pays per control of 6%. The decrease was partially offset
by strong retention, new business started from New Business Bookings and one
percentage point of benefit from foreign currency.
Revenues decreased for the nine months ended March 31, 2021 due to one
percentage point of pressure from our interest earned on funds held for clients
and a decrease in our pays per control of 7%. The decrease was offset by strong
retention and new business started from New Business Bookings.
Earnings before Income Taxes
Employer Services' earnings before income taxes decreased for the three months endedMarch 31, 2021 due to decreased revenues discussed above combined with increases in expenses. The increases in expenses were due to an increase in incentive compensation costs, the impact of foreign currency, and an increase in amortization expense. The increases in expenses were partially offset by a decrease in bad debt expense, reduced costs as a result of our broad-based transformation initiatives and excess capacity headcount actions and decreases in selling expenses as a result of reduced travel expenses. Employer Services' earnings before income taxes decreased for the nine months endedMarch 31, 2021 due to decreased revenues discussed above, partially offset by decreases in expenses. The decreases in expenses were due to reduced costs as a result of our broad-based transformation initiatives and excess capacity headcount actions. Additionally, decreases in expenses were due to a decrease in selling expenses as a result of reduced travel expenses and a decrease in bad debt expense. These decreases in expenses were partially offset by an increase in incentive compensation costs, an increase in amortization expense, and the impact of foreign currency.
For the three and nine months ended
[[Image Removed: adp-20210331_g19.jpg]][[Image Removed: adp-20210331_g20.jpg]]
Growth: â 120bps Flat
32-------------------------------------------------------------------------------- Employer Services' margin decreased for the three months endedMarch 31, 2021 due to increases in incentive compensation costs. The margin decrease was partially offset by reduced costs as a result of our broad-based transformation initiatives and excess capacity headcount actions, and a decrease in bad debt expense. Employer Services' margin was flat for the nine months endedMarch 31, 2021 due to reduced costs as a result of our broad-based transformation initiatives and excess capacity headcount actions, a decrease in bad debt expense, and a decrease in selling expenses as a result of reduced travel expenses. This was offset by an increase in incentive compensation costs and an increase in amortization expense. PEO Services Revenues PEO Revenues Three Months Ended Nine Months Ended March 31, Change March 31, Change 2021 2020 $ % 2021 2020 $ % PEO Services' revenues$ 1,324.1 $ 1,238.3 $ 85.8 7 %$ 3,606.1 $ 3,429.8 $ 176.3 5 % Less: PEO zero-margin benefits pass-throughs 784.7 747.9 36.8 5 % 2,291.7 2,169.4 122.3 6 %
PEO Services' revenues excluding
zero-margin benefits pass-throughs
10 % $ 1,314.4 $ 1,260.4 $ 54.0 4 %
PEO Services' revenue increased 7% and 5% for the three and nine months ended
Earnings before Income Taxes
PEO Services' earnings before income taxes increased 14% and 11% for the three and nine months endedMarch 31, 2021 , respectively, due to increased revenues discussed above, partially offset by increases in expenses. The increases in expenses were related to increases in zero-margin benefits pass-through costs of$36.8 million and$122.3 million , respectively, described above, partially offset by a decrease in selling expenses. In addition, the increase in expenses for the three and nine months endedMarch 31, 2021 was partially offset by changes in our estimated losses related to ADP Indemnity.
For the three and nine months ended
[[Image Removed: adp-20210331_g21.jpg]][[Image Removed: adp-20210331_g22.jpg]]
Growth: á 100bps á 80bps
PEO Services' margin increased for the three and nine months ended March 31,
2021 due to an increase in revenues as discussed above, a decrease in selling
expenses, and a change in our estimated losses related to ADP Indemnity.
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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 has a $1 million per occurrence
retention and, in fiscal years 2012 and prior, aggregate stop loss insurance
that covers any aggregate losses within the $1 million retention that
collectively exceed a certain level, 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. Beginning 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, to cover
substantially all losses incurred by ADP Indemnity during these policy years.
Each of these reinsurance arrangements limits our overall exposure incurred up
to a certain limit. We believe the likelihood of ultimate losses exceeding this
limit is remote. ADP Indemnity recorded a pre-tax benefit of approximately $12.0
million and $27.2 million for the three and nine months ended March 31, 2021 ,
respectively, compared to approximately $5.6 million and $13.6 million for the
three and nine months ended March 31, 2020 , respectively, which were primarily a
result of changes in our estimated actuarial losses. In July 2020 , ADP Indemnity
paid a premium of $240 million to enter into a reinsurance arrangement with
Chubb Limited to cover substantially all losses incurred by ADP Indemnity for
the fiscal 2021 policy year on terms substantially similar to the fiscal 2020
reinsurance policy.
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 expense.
Non-GAAP Financial Measures
In addition to our
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 Nine Months Ended
March 31, % Change March 31, % Change
2021 2020 As Reported 2021 2020 As Reported
Net earnings $ 810.7 $ 820.9 (1) % $ 2,060.3 $ 2,054.9 - %
Adjustments:
Provision for income taxes 255.5 255.8 603.8 596.4
All other interest expense (a) 13.2 14.8 40.5 44.3
All other interest income (a) (1.6) (5.1) (4.9) (18.9)
Gain on sale of assets - - - (0.2)
Transformation initiatives (b) (0.6) 11.1 3.5 19.6
Excess capacity severance charges (c) - - 2.9 -
Adjusted EBIT $ 1,077.2 $ 1,097.5 (2) % $ 2,706.1 $ 2,696.1 - %
Adjusted EBIT Margin 26.3 % 27.1 % 24.0 % 24.0 %
Provision for income taxes $ 255.5 $ 255.8 - % $ 603.8 $ 596.4 1 %
Adjustments:
Gain on sale of assets (d) - - - (0.1)
Transformation initiatives (d) (0.3) 2.7 0.7 4.8
Excess capacity severance charges (d) - - 0.7 -
Adjusted provision for income taxes $ 255.2 $ 258.5 (1) % $ 605.2 $ 601.1 1 %
Adjusted effective tax rate (e) 23.9 % 23.8 % 22.7 % 22.5 %
Net earnings $ 810.7 $ 820.9 (1) % $ 2,060.3 $ 2,054.9 - %
Adjustments:
Gain on sale of assets - - - (0.2)
Income tax provision on gain on sale of
assets (d) - - - 0.1
Transformation initiatives (b) (0.6) 11.1 3.5 19.6
Income tax (benefit) provision for
transformation initiatives (d) 0.3 (2.7) (0.7) (4.8)
Excess capacity severance charges (c) - - 2.9 -
Income tax benefit for excess capacity
severance charges (d) - - (0.7) -
Adjusted net earnings $ 810.4 $ 829.3 (2) % $ 2,065.3 $ 2,069.6 - %
Diluted EPS $ 1.90 $ 1.90 - % $ 4.80 $ 4.74 1 %
Adjustments:
Gain on sale of assets - - - -
Transformation initiatives (b) (d) - 0.02 0.01 0.03
Excess capacity severance charges (c)
(d) - - 0.01 -
Adjusted diluted EPS $ 1.89 $ 1.92 (2) % $ 4.82 $ 4.77 1 %
(a) 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) In the three months ended March 31, 2021 , transformation initiatives include
gain on sale of assets and net reversals related to other transformation
initiatives, including severance. This is partially offset by impairment charges
as a result of recognizing certain owned facilities at fair value given intent
to sell and accordingly classified as held for sale.
In the nine months ended March 31, 2021 , transformation initiatives include
impairment charges as a result of recognizing certain owned facilities at fair
value given intent to sell and accordingly classified as held for sale and lease
asset impairment charges partially offset by net reversals of charges related to
other transformation initiatives, including severance.
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Unlike other severance charges which are not included as an adjustment to get to
adjusted results, these specific charges relate to actions taken as part of our
broad-based, company-wide transformation initiative.
(c) Represents net severance cost related to excess capacity. Unlike certain
other severance charges in prior periods that are not included as an adjustment
to get to adjusted results, these specific charges relate to actions that are
part of our broad-based, company-wide initiatives to address excess capacity
across our business and functions.
(d) The income tax (benefit)/ provision was calculated based on the annualized marginal rate in effect during the quarter of the adjustment.
(e) 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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