Delaware | 22-1467904 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
One ADP Boulevard, Roseland, New Jersey | 07068 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filero |
Non-accelerated filer o | Smaller reporting companyo |
Page | |||||||
PART I – FINANCIAL INFORMATION | |||||||
Item 1. | Financial Statements (Unaudited) | ||||||
Statements of Consolidated Earnings Three and six months ended | 3 | ||||||
Consolidated Balance Sheets | |||||||
At | 4 | ||||||
Statements of Consolidated Cash Flows Six months ended December 31, 2011 and 2010 | |||||||
Notes to the Consolidated Financial Statements | 6 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 43 | |||||
Item 4. | Controls and Procedures | 43 | |||||
PART II – OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | 43 | |||||
Item 1A. | Risk Factors | 43 | |||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44 | |||||
Item 6. | Exhibits | 45 | |||||
Signatures | 45 |
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
REVENUES: | ||||||||||||||||
Revenues, other than interest on funds | ||||||||||||||||
held for clients and PEO revenues | $ | 2,054.0 | $ | 1,921.0 | $ | 4,056.7 | $ | 3,684.8 | ||||||||
Interest on funds held for clients | 117.9 | 129.0 | 239.8 | 255.8 | ||||||||||||
PEO revenues (A) | 411.1 | 355.7 | 809.0 | 694.6 | ||||||||||||
TOTAL REVENUES | 2,583.0 | 2,405.7 | 5,105.5 | 4,635.2 | ||||||||||||
EXPENSES: | ||||||||||||||||
Costs of revenues: | ||||||||||||||||
Operating expenses | 1,307.7 | 1,173.6 | 2,600.3 | 2,290.3 | ||||||||||||
Systems development and programming costs | 149.1 | 142.1 | 298.8 | 277.0 | ||||||||||||
Depreciation and amortization | 63.1 | 64.6 | 126.9 | 124.9 | ||||||||||||
TOTAL COSTS OF REVENUES | 1,519.9 | 1,380.3 | 3,026.0 | 2,692.2 | ||||||||||||
Selling, general and administrative expenses | 577.5 | 570.1 | 1,166.7 | 1,085.7 | ||||||||||||
Interest expense | 2.1 | 2.8 | 4.2 | 5.6 | ||||||||||||
TOTAL EXPENSES | 2,099.5 | 1,953.2 | 4,196.9 | 3,783.5 | ||||||||||||
Other income, net | (96.2 | ) | (32.1 | ) | (130.4 | ) | (69.3 | ) | ||||||||
EARNINGS BEFORE INCOME TAXES | 579.7 | 484.6 | 1,039.0 | 921.0 | ||||||||||||
Provision for income taxes | 204.7 | 174.5 | 361.3 | 332.4 | ||||||||||||
NET EARNINGS | $ | 375.0 | $ | 310.1 | $ | 677.7 | $ | 588.6 | ||||||||
BASIC EARNINGS PER SHARE | $ | 0.77 | $ | 0.63 | $ | 1.39 | $ | 1.20 | ||||||||
DILUTED EARNINGS PER SHARE | $ | 0.76 | $ | 0.62 | $ | 1.38 | $ | 1.19 | ||||||||
Basic weighted average shares outstanding | 486.7 | 492.0 | 487.3 | 491.7 | ||||||||||||
Diluted weighted average shares outstanding | 492.4 | 496.9 | 492.8 | 495.9 | ||||||||||||
Dividends declared per common share | $ | 0.3950 | $ | 0.3600 | $ | 0.7550 | $ | 0.7000 |
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
REVENUES: | ||||||||
Revenues, other than interest on funds | ||||||||
held for clients and PEO revenues | $ | 2,002.7 | $ | 1,763.7 | ||||
Interest on funds held for clients | 121.9 | 126.8 | ||||||
PEO revenues (A) | 397.9 | 338.9 | ||||||
TOTAL REVENUES | 2,522.5 | 2,229.4 | ||||||
EXPENSES: | ||||||||
Costs of revenues: | ||||||||
Operating expenses | 1,292.7 | 1,116.7 | ||||||
Systems development and programming costs | 149.7 | 134.9 | ||||||
Depreciation and amortization | 63.7 | 60.3 | ||||||
TOTAL COSTS OF REVENUES | 1,506.1 | 1,311.9 | ||||||
Selling, general and administrative expenses | 589.2 | 515.6 | ||||||
Interest expense | 2.1 | 2.7 | ||||||
TOTAL EXPENSES | 2,097.4 | 1,830.2 | ||||||
Other income, net | (34.2 | ) | (37.2 | ) | ||||
EARNINGS BEFORE INCOME TAXES | 459.3 | 436.4 | ||||||
Provision for income taxes | 156.6 | 157.9 | ||||||
NET EARNINGS | $ | 302.7 | $ | 278.5 | ||||
BASIC EARNINGS PER SHARE | $ | 0.62 | $ | 0.57 | ||||
DILUTED EARNINGS PER SHARE | $ | 0.61 | $ | 0.56 | ||||
Basic weighted average shares outstanding | 487.9 | 491.4 | ||||||
Diluted weighted average shares outstanding | 493.3 | 494.9 | ||||||
Dividends declared per common share | $ | 0.3600 | $ | 0.3400 | ||||
September 30, | June 30, | |||||||||||||||
2011 | 2011 | December 31, | June 30, | |||||||||||||
Assets | 2011 | 2011 | ||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,248.9 | $ | 1,389.4 | $ | 1,331.3 | $ | 1,389.4 | ||||||||
Short-term marketable securities | 19.1 | 36.3 | 23.9 | 36.3 | ||||||||||||
Accounts receivable, net | 1,236.9 | 1,364.8 | 1,353.9 | 1,364.8 | ||||||||||||
Other current assets | 667.9 | 648.3 | 659.4 | 648.3 | ||||||||||||
Assets held for sale | 9.1 | 9.1 | 9.1 | 9.1 | ||||||||||||
Total current assets before funds held for clients | 3,181.9 | 3,447.9 | 3,377.6 | 3,447.9 | ||||||||||||
Funds held for clients | 19,272.1 | 25,135.6 | 23,349.5 | 25,135.6 | ||||||||||||
Total current assets | 22,454.0 | 28,583.5 | 26,727.1 | 28,583.5 | ||||||||||||
Long-term marketable securities | 99.7 | 98.0 | 98.7 | 98.0 | ||||||||||||
Long-term receivables, net | 124.8 | 128.7 | 125.2 | 128.7 | ||||||||||||
Property, plant and equipment, net | 708.3 | 716.2 | 707.9 | 716.2 | ||||||||||||
Other assets | 949.2 | 922.6 | 964.0 | 922.6 | ||||||||||||
Goodwill | 2,997.5 | 3,073.6 | 3,130.0 | 3,073.6 | ||||||||||||
Intangible assets, net | 686.7 | 715.7 | 731.5 | 715.7 | ||||||||||||
Total assets | $ | 28,020.2 | $ | 34,238.3 | $ | 32,484.4 | $ | 34,238.3 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 123.0 | $ | 153.3 | $ | 137.3 | $ | 153.3 | ||||||||
Accrued expenses and other current liabilities | 869.9 | 930.4 | 963.0 | 930.4 | ||||||||||||
Accrued payroll and payroll-related expenses | 384.4 | 558.3 | 447.4 | 558.3 | ||||||||||||
Dividends payable | 172.3 | 174.2 | 189.2 | 174.2 | ||||||||||||
Short-term deferred revenues | 325.5 | 350.9 | 325.3 | 350.9 | ||||||||||||
Income taxes payable | 84.1 | 28.6 | 45.1 | 28.6 | ||||||||||||
Total current liabilities before client funds obligations | 1,959.2 | 2,195.7 | 2,107.3 | 2,195.7 | ||||||||||||
Client funds obligations | 18,552.6 | 24,591.1 | 22,690.2 | 24,591.1 | ||||||||||||
Total current liabilities | 20,511.8 | 26,786.8 | 24,797.5 | 26,786.8 | ||||||||||||
Long-term debt | 26.0 | 34.2 | 25.5 | 34.2 | ||||||||||||
Other liabilities | 582.1 | 556.2 | 605.3 | 556.2 | ||||||||||||
Deferred income taxes | 415.4 | 373.5 | 409.3 | 373.5 | ||||||||||||
Long-term deferred revenues | 465.7 | 477.2 | 464.4 | 477.2 | ||||||||||||
Total liabilities | 22,001.0 | 28,227.9 | 26,302.0 | 28,227.9 | ||||||||||||
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 September 30, 2011 and June 30, 2011; | ||||||||||||||||
outstanding, 488.2 and 490.8 shares at September 30, 2011 | ||||||||||||||||
shares at December 31, 2011 and June 30, 2011; | ||||||||||||||||
outstanding, 489.1 and 490.8 shares at December 31, 2011 | ||||||||||||||||
and June 30, 2011, respectively | 63.9 | 63.9 | 63.9 | 63.9 | ||||||||||||
Capital in excess of par value | 466.7 | 489.5 | 479.2 | 489.5 | ||||||||||||
Retained earnings | 11,930.7 | 11,803.9 | 12,112.6 | 11,803.9 | ||||||||||||
Treasury stock - at cost: 150.5 and 147.9 shares | ||||||||||||||||
at September 30, 2011 and June 30, 2011, respectively | (6,848.6 | ) | (6,714.0 | ) | ||||||||||||
Treasury stock - at cost: 149.6 and 147.9 shares | ||||||||||||||||
at December 31, 2011 and June 30, 2011, respectively | (6,812.8 | ) | (6,714.0 | ) | ||||||||||||
Accumulated other comprehensive income | 406.5 | 367.1 | 339.5 | 367.1 | ||||||||||||
Total stockholders’ equity | 6,019.2 | 6,010.4 | 6,182.4 | 6,010.4 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 28,020.2 | $ | 34,238.3 | $ | 32,484.4 | $ | 34,238.3 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net earnings | $ | 302.7 | $ | 278.5 | $ | 677.7 | $ | 588.6 | ||||||||
Adjustments to reconcile net earnings to cash flows provided by | ||||||||||||||||
operating activities: | ||||||||||||||||
Depreciation and amortization | 79.7 | 75.5 | 158.9 | 158.2 | ||||||||||||
Deferred income taxes | 9.7 | 7.6 | 7.2 | 17.2 | ||||||||||||
Stock-based compensation expense | 18.6 | 13.9 | 45.7 | 36.7 | ||||||||||||
Net pension expense | 9.2 | 10.1 | 18.3 | 20.2 | ||||||||||||
Net realized gain from the sales of marketable securities | (4.0 | ) | (11.8 | ) | (12.2 | ) | (15.4 | ) | ||||||||
Net amortization of premiums and accretion of discounts | ||||||||||||||||
on available-for-sale securities | 12.8 | 13.0 | ||||||||||||||
Net amortization of premiums and accretion of discounts on available-for-sale securities | 27.2 | 27.1 | ||||||||||||||
Impairment losses on available-for-sale securities | 5.8 | - | ||||||||||||||
Impairment losses on assets held for sale | - | 8.6 | - | 8.6 | ||||||||||||
Gain on sale of assets | (66.0 | ) | - | |||||||||||||
Gains on sales of buildings | - | (1.8 | ) | - | (1.8 | ) | ||||||||||
Other | 4.3 | 12.8 | 1.2 | 33.6 | ||||||||||||
Changes in operating assets and liabilities, net of effects | ||||||||||||||||
from acquisitions and divestitures of businesses: | ||||||||||||||||
Changes in operating assets and liabilities, net of effects from acquisitions | ||||||||||||||||
and divestitures of businesses: | ||||||||||||||||
Decrease in accounts receivable | 106.3 | 27.4 | 2.4 | 73.3 | ||||||||||||
Increase in other assets | (117.7 | ) | (106.3 | ) | (123.1 | ) | (79.4 | ) | ||||||||
Decrease in accounts payable | (26.5 | ) | (36.6 | ) | (16.2 | ) | (58.7 | ) | ||||||||
Decrease in accrued expenses and other liabilities | (78.8 | ) | (68.6 | ) | ||||||||||||
Increase/(decrease) in accrued expenses and other liabilities | 21.0 | (160.9 | ) | |||||||||||||
Net cash flows provided by operating activities | 316.3 | 222.3 | 747.9 | 647.3 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Purchases of corporate and client funds marketable securities | (1,095.1 | ) | (1,085.3 | ) | (2,233.1 | ) | (2,567.7 | ) | ||||||||
Proceeds from the sales and maturities of corporate | ||||||||||||||||
and client funds marketable securities | 844.3 | 826.9 | ||||||||||||||
Net decrease (increase) in restricted cash and cash equivalents | ||||||||||||||||
held to satisfy client fund obligations | 6,192.2 | (3,380.4 | ) | |||||||||||||
Proceeds from the sales and maturities of corporate and client funds marketable securities | 2,031.7 | 1,559.4 | ||||||||||||||
Net decrease/(increase) in restricted cash and cash equivalents held to satisfy client funds obligations | 1,997.6 | (4,444.5 | ) | |||||||||||||
Capital expenditures | (33.4 | ) | (38.6 | ) | (66.6 | ) | (80.7 | ) | ||||||||
Additions to intangibles | (24.0 | ) | (19.4 | ) | (51.4 | ) | (35.8 | ) | ||||||||
Acquisitions of businesses, net of cash acquired | (1.9 | ) | (475.3 | ) | (176.3 | ) | (588.8 | ) | ||||||||
Proceeds from the sale of property, plant and equipment | - | 13.0 | ||||||||||||||
Proceeds from the sale of property, plant and equipment and other assets | 66.0 | 13.1 | ||||||||||||||
Other | - | 3.4 | 0.2 | 6.9 | ||||||||||||
Net cash flows provided by (used in) investing activities | 5,882.1 | (4,155.7 | ) | 1,568.1 | (6,138.1 | ) | ||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Net (decrease) increase in client funds obligations | (5,936.9 | ) | 3,639.1 | |||||||||||||
Net (decrease)/increase in client funds obligations | (1,805.2 | ) | 5,444.1 | |||||||||||||
Payments of debt | (0.5 | ) | (4.3 | ) | (1.0 | ) | (4.7 | ) | ||||||||
Repurchases of common stock | (249.2 | ) | (49.8 | ) | (297.9 | ) | (102.1 | ) | ||||||||
Proceeds from stock purchase plan and exercises of stock options | 48.9 | 21.8 | 118.2 | 128.6 | ||||||||||||
Dividends paid | (177.7 | ) | (168.0 | ) | (353.9 | ) | (335.6 | ) | ||||||||
Net cash flows (used in) provided by financing activities | (6,315.4 | ) | 3,438.8 | (2,339.8 | ) | 5,130.3 | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | (23.5 | ) | 28.0 | (34.3 | ) | 22.9 | ||||||||||
Net change in cash and cash equivalents | (140.5 | ) | (466.6 | ) | (58.1 | ) | (337.6 | ) | ||||||||
Cash and cash equivalents, beginning of period | 1,389.4 | 1,643.3 | 1,389.4 | 1,643.3 | ||||||||||||
Cash and cash equivalents, end of period | $ | 1,248.9 | $ | 1,176.7 | $ | 1,331.3 | $ | 1,305.7 | ||||||||
Effect of | Effect of | |||||||||||||||
Employee | Employee | |||||||||||||||
Stock | Restricted | |||||||||||||||
Option | Stock | |||||||||||||||
Basic | Shares | Shares | Diluted | |||||||||||||
Three months ended December 31, | ||||||||||||||||
2011 | ||||||||||||||||
Net earnings | $ | 375.0 | $ | 375.0 | ||||||||||||
Weighted average shares (in millions) | 486.7 | 4.1 | 1.6 | 492.4 | ||||||||||||
EPS | $ | 0.77 | $ | 0.76 | ||||||||||||
2010 | ||||||||||||||||
Net earnings | $ | 310.1 | $ | 310.1 | ||||||||||||
Weighted average shares (in millions) | 492.0 | 3.6 | 1.3 | 496.9 | ||||||||||||
EPS | $ | 0.63 | $ | 0.62 | ||||||||||||
Six months ended December 31, | ||||||||||||||||
2011 | ||||||||||||||||
Net earnings | $ | 677.7 | $ | 677.7 | ||||||||||||
Weighted average shares (in millions) | 487.3 | 4.0 | 1.5 | 492.8 | ||||||||||||
EPS | $ | 1.39 | $ | 1.38 | ||||||||||||
2010 | ||||||||||||||||
Net earnings | $ | 588.6 | $ | 588.6 | ||||||||||||
Weighted average shares (in millions) | 491.7 | 2.9 | 1.3 | 495.9 | ||||||||||||
EPS | $ | 1.20 | $ | 1.19 |
Effect of | Effect of | |||||||||
Employee | Employee | |||||||||
Stock | Restricted | |||||||||
Option | Stock | |||||||||
Basic | Shares | Shares | Diluted | |||||||
Three months ended September 30, | ||||||||||
2011 | ||||||||||
Net earnings | $ | 302.7 | $ | 302.7 | ||||||
Weighted average shares (in millions) | 487.9 | 4.0 | 1.4 | 493.3 | ||||||
EPS | $ | 0.62 | $ | 0.61 | ||||||
2010 | ||||||||||
Net earnings | $ | 278.5 | $ | 278.5 | ||||||
Weighted average shares (in millions) | 491.4 | 2.2 | 1.3 | 494.9 | ||||||
EPS | $ | 0.57 | $ | 0.56 |
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
September 30, | December 31, | December 31, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Interest income on corporate funds | $ | (29.6 | ) | $ | (30.7 | ) | $ | (27.2 | ) | $ | (27.9 | ) | $ | (56.8 | ) | $ | (58.7 | ) | ||||||
Realized gains on available-for-sale securities | (4.3 | ) | (12.2 | ) | (14.8 | ) | (5.4 | ) | (19.1 | ) | (17.6 | ) | ||||||||||||
Realized losses on available-for-sale securities | 0.3 | 0.4 | 6.6 | 1.8 | 6.9 | 2.2 | ||||||||||||||||||
Impairment losses on available-for-sale securities | 5.8 | - | 5.8 | - | ||||||||||||||||||||
Impairment losses on assets held for sale | - | 8.6 | - | - | - | 8.6 | ||||||||||||||||||
Gain on sale of assets | (66.0 | ) | - | (66.0 | ) | - | ||||||||||||||||||
Gains on sales of buildings | - | (1.8 | ) | - | - | - | (1.8 | ) | ||||||||||||||||
Other, net | (0.6 | ) | (1.5 | ) | (0.6 | ) | (0.6 | ) | (1.2 | ) | (2.0 | ) | ||||||||||||
Other income, net | $ | (34.2 | ) | $ | (37.2 | ) | $ | (96.2 | ) | $ | (32.1 | ) | $ | (130.4 | ) | $ | (69.3 | ) | ||||||
Accounts receivable, net | $ | 42.5 |
Goodwill | 293.5 | |
Identifiable intangible assets | 111.6 | |
Other assets | 37.5 | |
Total assets acquired | $ | 485.1 |
Total liabilities acquired | $ | 58.0 |
September 30, 2011 | December 31, 2011 | |||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Amortized | Unrealized | Unrealized | |||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | Cost | Gains | Losses | Fair Value | |||||||||||||||||||||
Type of issue: | ||||||||||||||||||||||||||||
Money market securities and other cash | ||||||||||||||||||||||||||||
equivalents | $ | 3,390.7 | $ | - | $ | - | $ | 3,390.7 | $ | 7,654.0 | $ | - | $ | - | $ | 7,654.0 | ||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||||||
U.S. Treasury and direct obligations of | ||||||||||||||||||||||||||||
U.S. government agencies | 6,466.3 | 277.4 | (1.0 | ) | 6,742.7 | 6,539.1 | 271.6 | (0.1 | ) | 6,810.6 | ||||||||||||||||||
Corporate bonds | 6,297.3 | 276.5 | (6.4 | ) | 6,567.4 | 6,249.0 | 245.8 | (10.9 | ) | 6,483.9 | ||||||||||||||||||
Asset-backed securities | 375.1 | 22.8 | - | 397.9 | 357.9 | 18.8 | - | 376.7 | ||||||||||||||||||||
Commercial mortgage-backed securities | 421.5 | 12.0 | - | 433.5 | 374.6 | 13.4 | - | 388.0 | ||||||||||||||||||||
Municipal bonds | 486.9 | 30.1 | (0.1 | ) | 516.9 | 494.7 | 33.4 | - | 528.1 | |||||||||||||||||||
Canadian government obligations and | ||||||||||||||||||||||||||||
Canadian government agency obligations | 972.1 | 33.2 | - | 1,005.3 | 996.5 | 31.1 | (0.1 | ) | 1,027.5 | |||||||||||||||||||
Other securities | 1,488.5 | 97.2 | (0.3 | ) | 1,585.4 | 1,452.5 | 84.1 | (2.0 | ) | 1,534.6 | ||||||||||||||||||
Total available-for-sale securities | 16,507.7 | 749.2 | (7.8 | ) | 17,249.1 | 16,464.3 | 698.2 | (13.1 | ) | 17,149.4 | ||||||||||||||||||
Total corporate investments and funds | ||||||||||||||||||||||||||||
held for clients | $ | 19,898.4 | $ | 749.2 | $ | (7.8 | ) | $ | 20,639.8 | $ | 24,118.3 | $ | 698.2 | $ | (13.1 | ) | $ | 24,803.4 | ||||||||||
June 30, 2011 | ||||||||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||||||||||||||
Type of issue: | ||||||||||||||||||||||||||||
Money market securities and other cash | ||||||||||||||||||||||||||||
equivalents | $ | 9,731.8 | $ | - | $ | - | $ | 9,731.8 | ||||||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||||||
U.S. Treasury and direct obligations of | ||||||||||||||||||||||||||||
U.S. government agencies | 6,558.2 | 213.0 | (12.1 | ) | 6,759.1 | |||||||||||||||||||||||
Corporate bonds | 5,908.6 | 234.9 | (16.9 | ) | 6,126.6 | |||||||||||||||||||||||
Asset-backed securities | 422.4 | 25.4 | - | 447.8 | ||||||||||||||||||||||||
Commercial mortgage backed securities | 476.6 | 15.9 | - | 492.5 | ||||||||||||||||||||||||
Municipal bonds | 493.7 | 23.1 | (0.6 | ) | 516.2 | |||||||||||||||||||||||
Canadian government obligations and | ||||||||||||||||||||||||||||
Canadian government agency obligations | 1,082.0 | 20.8 | (1.3 | ) | 1,101.5 | |||||||||||||||||||||||
Other securities | 1,415.1 | 72.4 | (3.7 | ) | 1,483.8 | |||||||||||||||||||||||
Total available-for-sale securities | 16,356.6 | 605.5 | (34.6 | ) | 16,927.5 | |||||||||||||||||||||||
Total corporate investments and funds | ||||||||||||||||||||||||||||
held for clients | $ | 26,088.4 | $ | 605.5 | $ | (34.6 | ) | $ | 26,659.3 |
June 30, 2011 | ||||||||||||
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | ||||||||||
Cost | Gains | Losses | Fair Value | |||||||||
Type of issue: | ||||||||||||
Money market securities and other cash | ||||||||||||
equivalents | $ | 9,731.8 | $ | - | $ | - | $ | 9,731.8 | ||||
Available-for-sale securities: | ||||||||||||
U.S. Treasury and direct obligations of | ||||||||||||
U.S. government agencies | 6,558.2 | 213.0 | (12.1 | ) | 6,759.1 | |||||||
Corporate bonds | 5,908.6 | 234.9 | (16.9 | ) | 6,126.6 | |||||||
Asset-backed securities | 422.4 | 25.4 | - | 447.8 | ||||||||
Commercial mortgage backed securities | 476.6 | 15.9 | - | 492.5 | ||||||||
Municipal bonds | 493.7 | 23.1 | (0.6 | ) | 516.2 | |||||||
Canadian government obligations and | ||||||||||||
Canadian government agency obligations | 1,082.0 | 20.8 | (1.3 | ) | 1,101.5 | |||||||
Other securities | 1,415.1 | 72.4 | (3.7 | ) | 1,483.8 | |||||||
Total available-for-sale securities | 16,356.6 | 605.5 | (34.6 | ) | 16,927.5 | |||||||
Total corporate investments and funds | ||||||||||||
held for clients | $ | 26,088.4 | $ | 605.5 | $ | (34.6 | ) | $ | 26,659.3 | |||
December 31, | June 30, | ||||||||||||
September 30, | June 30, | 2011 | 2011 | ||||||||||
2011 | 2011 | ||||||||||||
Corporate investments: | |||||||||||||
Cash and cash equivalents | $ | 1,248.9 | $ | 1,389.4 | $ | 1,331.3 | $ | 1,389.4 | |||||
Short-term marketable securities | 19.1 | 36.3 | 23.9 | 36.3 | |||||||||
Long-term marketable securities | 99.7 | 98.0 | 98.7 | 98.0 | |||||||||
Total corporate investments | $ | 1,367.7 | $ | 1,523.7 | $ | 1,453.9 | $ | 1,523.7 | |||||
December 31, | June 30, | ||||||||||||
September 30, | June 30, | 2011 | 2011 | ||||||||||
2011 | 2011 | ||||||||||||
Funds held for clients: | |||||||||||||
Restricted cash and cash equivalents held | |||||||||||||
to satisfy client funds obligations | $ | 2,141.8 | $ | 8,342.4 | $ | 6,322.7 | $ | 8,342.4 | |||||
Restricted short-term marketable securities held | |||||||||||||
to satisfy client funds obligations | 2,824.5 | 3,059.9 | 2,899.5 | 3,059.9 | |||||||||
Restricted long-term marketable securities held | |||||||||||||
to satisfy client funds obligations | 14,305.8 | 13,733.3 | 14,127.3 | 13,733.3 | |||||||||
Total funds held for clients | $ | 19,272.1 | $ | 25,135.6 | $ | 23,349.5 | $ | 25,135.6 | |||||
Unrealized | Unrealized | ||||||||||||||||||||||||||||||||||||||||||
Unrealized | Unrealized | losses | Fair market | losses | Fair market | Total gross | |||||||||||||||||||||||||||||||||||||
losses | Fair market | losses | Fair market | Total gross | less than | value less than | greater than | value greater | unrealized | Total fair | |||||||||||||||||||||||||||||||||
less than | value less than | greater than | value greater | unrealized | Total fair | 12 months | 12 months | 12 months | than 12 months | losses | market value | ||||||||||||||||||||||||||||||||
12 months | 12 months | 12 months | than 12 months | losses | market value | ||||||||||||||||||||||||||||||||||||||
U.S. Treasury and direct obligations of | |||||||||||||||||||||||||||||||||||||||||||
U.S. government agencies | $ | (1.0 | ) | $ | 182.5 | $ | - | $ | - | $ | (1.0 | ) | $ | 182.5 | $ | (0.1 | ) | $ | 108.7 | $ | - | $ | - | $ | (0.1 | ) | $ | 108.7 | |||||||||||||||
Corporate bonds | (6.4 | ) | 470.4 | - | - | (6.4 | ) | 470.4 | (7.0 | ) | 600.5 | (3.9 | ) | 93.3 | (10.9 | ) | 693.8 | ||||||||||||||||||||||||||
Asset-backed securities | - | 2.6 | - | - | - | 2.6 | - | 4.8 | - | - | - | 4.8 | |||||||||||||||||||||||||||||||
Commercial mortgage-backed securities | - | 28.2 | - | - | - | 28.2 | - | 18.8 | - | - | - | 18.8 | |||||||||||||||||||||||||||||||
Municipal bonds | (0.1 | ) | 5.3 | - | - | (0.1 | ) | 5.3 | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Canadian government obligations and | - | - | |||||||||||||||||||||||||||||||||||||||||
Canadian government agency obligations | - | 6.7 | - | - | - | 6.7 | (0.1 | ) | 13.6 | - | - | (0.1 | ) | 13.6 | |||||||||||||||||||||||||||||
Other securities | (0.3 | ) | 17.5 | - | - | (0.3 | ) | 17.5 | (2.0 | ) | 142.0 | - | - | (2.0 | ) | 142.0 | |||||||||||||||||||||||||||
$ | (7.8 | ) | $ | 713.2 | $ | - | $ | - | $ | (7.8 | ) | $ | 713.2 | ||||||||||||||||||||||||||||||
$ | (9.2 | ) | $ | 888.4 | $ | (3.9 | ) | $ | 93.3 | $ | (13.1 | ) | $ | 981.7 |
Unrealized | Unrealized | |||||||||||||||||||||||
losses | Fair market | losses | Fair market | Total gross | ||||||||||||||||||||
less than | value less than | greater than | value greater | unrealized | Total fair | |||||||||||||||||||
12 months | 12 months | 12 months | than 12 months | losses | market value | |||||||||||||||||||
U.S. Treasury and direct obligations of | ||||||||||||||||||||||||
U.S. government agencies | $ | (12.1 | ) | $ | 1,049.0 | $ | - | $ | - | $ | (12.1 | ) | $ | 1,049.0 | ||||||||||
Corporate bonds | (16.9 | ) | 945.2 | - | - | (16.9 | ) | 945.2 | ||||||||||||||||
Asset-backed securities | - | 0.5 | - | - | - | 0.5 | ||||||||||||||||||
Commercial mortgage-backed securities | - | 17.3 | - | - | - | 17.3 | ||||||||||||||||||
Municipal bonds | (0.6 | ) | 35.0 | - | - | (0.6 | ) | 35.0 | ||||||||||||||||
Canadian government obligations and | ||||||||||||||||||||||||
Canadian government agency obligations | (1.3 | ) | 227.7 | - | - | (1.3 | ) | 227.7 | ||||||||||||||||
Other securities | (3.7 | ) | 242.3 | - | - | (3.7 | ) | 242.3 | ||||||||||||||||
$ | (34.6 | ) | $ | 2,517.0 | $ | - | $ | - | $ | (34.6 | ) | $ | 2,517.0 |
Due in one year or less | $ | 2,843.7 | $ | 2,923.4 | ||
Due after one year to two years | 3,157.0 | 2,301.2 | ||||
Due after two years to three years | 1,705.5 | 2,164.9 | ||||
Due after three years to four years | 3,790.7 | 4,214.0 | ||||
Due after four years | 5,752.2 | 5,545.9 | ||||
Total available-for-sale securities | $ | 17,249.1 | $ | 17,149.4 | ||
Level 1 | Fair value is determined based upon quoted prices for identical assets or liabilities that are traded in active markets. | ||
Level 2 | Fair value is determined based upon inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
| ||
Level 3 | Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based upon the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows). |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
U.S Treasury and direct obligations of | ||||||||||||||||
U.S. government agencies | $ | - | $ | 6,810.6 | $ | - | $ | 6,810.6 | ||||||||
Corporate bonds | - | 6,483.9 | - | 6,483.9 | ||||||||||||
Asset-backed securities | - | 376.7 | - | 376.7 | ||||||||||||
Commercial mortgage-backed securities | - | 388.0 | - | 388.0 | ||||||||||||
Municipal bonds | - | 528.1 | - | 528.1 | ||||||||||||
Canadian government obligations and | ||||||||||||||||
Canadian government agency obligations | - | 1,027.5 | - | 1,027.5 | ||||||||||||
Other securities | 18.8 | 1,515.8 | - | 1,534.6 | ||||||||||||
Total available-for-sale securities | $ | 18.8 | $ | 17,130.6 | $ | - | $ | 17,149.4 |
Level 1 | Level 2 | Level 3 | Total | ||||||||
U.S Treasury and direct obligations of | |||||||||||
U.S. government agencies | $ | - | $ | 6,742.7 | $ | - | $ | 6,742.7 | |||
Corporate bonds | - | 6,567.4 | - | 6,567.4 | |||||||
Asset-backed securities | - | 397.9 | - | 397.9 | |||||||
Commercial mortgage-backed securities | - | 433.5 | - | 433.5 | |||||||
Municipal bonds | - | 516.9 | - | 516.9 | |||||||
Canadian government obligations and | |||||||||||
Canadian government agency obligations | - | 1,005.3 | - | 1,005.3 | |||||||
Other securities | 14.0 | 1,571.4 | - | 1,585.4 | |||||||
Total available-for-sale securities | $ | 14.0 | $ | 17,235.1 | $ | - | $ | 17,249.1 | |||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
U.S Treasury and direct obligations of | ||||||||||||||||
U.S. government agencies | $ | - | $ | 6,759.1 | $ | - | $ | 6,759.1 | ||||||||
Corporate bonds | - | 6,126.6 | - | 6,126.6 | ||||||||||||
Asset-backed securities | - | 447.8 | - | 447.8 | ||||||||||||
Commercial mortgage-backed securities | - | 492.5 | - | 492.5 | ||||||||||||
Municipal bonds | - | 516.2 | - | 516.2 | ||||||||||||
Canadian government obligations and | ||||||||||||||||
Canadian government agency obligations | - | 1,101.5 | - | 1,101.5 | ||||||||||||
Other securities | 20.1 | 1,463.7 | - | 1,483.8 | ||||||||||||
Total available-for-sale securities | $ | 20.1 | $ | 16,907.4 | $ | - | $ | 16,927.5 |
December 31, 2011 | June 30, 2011 | ||||||||||||||||||||||||||||||
September 30, 2011 | June 30, 2011 | Current | Long-term | Current | Long-term | ||||||||||||||||||||||||||
Current | Long-term | Current | Long-term | ||||||||||||||||||||||||||||
Trade receivables | $ | 1,209.7 | $ | - | $ | 1,333.2 | $ | - | $ | 1,323.5 | $ | - | $ | 1,333.2 | $ | - | |||||||||||||||
Notes receivable | 87.9 | 142.1 | 90.5 | 146.4 | 88.1 | 141.1 | 90.5 | 146.4 | |||||||||||||||||||||||
Less: | |||||||||||||||||||||||||||||||
Allowance for doubtful accounts - trade receivables | (46.8 | ) | - | (44.8 | ) | - | (44.7 | ) | - | (44.8 | ) | - | |||||||||||||||||||
Allowance for doubtful accounts - notes receivable | (6.0 | ) | (9.7 | ) | (5.7 | ) | (9.4 | ) | (5.6 | ) | (9.0 | ) | (5.7 | ) | (9.4 | ) | |||||||||||||||
Unearned income-notes receivable | (7.9 | ) | (7.6 | ) | (8.4 | ) | (8.3 | ) | |||||||||||||||||||||||
Unearned income - notes receivable | (7.4 | ) | (6.9 | ) | (8.4 | ) | (8.3 | ) | |||||||||||||||||||||||
Total | $ | 1,236.9 | $ | 124.8 | $ | 1,364.8 | $ | 128.7 | $ | 1,353.9 | $ | 125.2 | $ | 1,364.8 | $ | 128.7 | |||||||||||||||
September 30, 2011 | December 31, 2011 | ||||||||||||||||||||||||||
Notes Receivable | Reserve | Notes Receivable | Reserve | ||||||||||||||||||||||||
Current | Long-term | Current | Long-term | Current | Long-term | Current | Long-term | ||||||||||||||||||||
Specific Reserve | $ | 0.6 | $ | 0.9 | $ | 0.6 | $ | 0.9 | $ | 0.4 | $ | 0.7 | $ | 0.4 | $ | 0.7 | |||||||||||
Non-specific Reserve | 87.3 | 141.2 | 5.4 | 8.8 | 87.7 | 140.4 | 5.2 | 8.3 | |||||||||||||||||||
Total | $ | 87.9 | $ | 142.1 | $ | 6.0 | $ | 9.7 | $ | 88.1 | $ | 141.1 | $ | 5.6 | $ | 9.0 | |||||||||||
June 30, 2011 | |||||||||||||||||||||||||||
Notes Receivable | Reserve | ||||||||||||||||||||||||||
Current | Long-term | Current | Long-term | ||||||||||||||||||||||||
Specific Reserve | $ | 0.6 | $ | 0.9 | $ | 0.6 | $ | 0.9 | |||||||||||||||||||
Non-specific Reserve | 89.9 | 145.5 | 5.1 | 8.5 | |||||||||||||||||||||||
Total | $ | 90.5 | $ | 146.4 | $ | 5.7 | $ | 9.4 | |||||||||||||||||||
June 30, 2011 | ||||||||||||||||
Notes Receivable | Reserve | |||||||||||||||
Current | Long-term | Current | Long-term | |||||||||||||
Specific Reserve | $ | 0.6 | $ | 0.9 | $ | 0.6 | $ | 0.9 | ||||||||
Non-specific Reserve | 89.9 | 145.5 | 5.1 | 8.5 | ||||||||||||
Total | $ | 90.5 | $ | 146.4 | $ | 5.7 | $ | 9.4 |
Current | Long-term | ||||||
Balance at June 30, 2011 | $ | 5.7 | $ | 9.4 | |||
Incremental provision | 0.4 | 0.3 | |||||
Recoveries | 0.1 | 0.2 | |||||
Chargeoffs | (0.2 | ) | (0.2 | ) | |||
Balance at September 30, 2011 | $ | 6.0 | $ | 9.7 | |||
Current | Long-term | |||||||
Balance at June 30, 2011 | $ | 5.7 | $ | 9.4 | ||||
Incremental provision | 0.7 | 0.9 | ||||||
Recoveries | (0.4 | ) | (0.8 | ) | ||||
Chargeoffs | (0.4 | ) | (0.5 | ) | ||||
Balance at December 31, 2011 | $ | 5.6 | $ | 9.0 |
Over 30 days to 60 days | Over 60 days | |||||||
Notes Receivables | $ | 1.4 | $ | 0.4 |
Over 30 days to | |||||
60 days | Over 60 days | ||||
Notes Receivables | $ | 1.7 | $ | 0.4 | |
Over 30 days to 60 days | Over 60 days | |||||||
Notes Receivables | $ | 1.2 | $ | 0.1 |
Employer | PEO | Dealer | ||||||||||||||||||||||||||||
Employer | PEO | Dealer | Services | Services | Services | Total | ||||||||||||||||||||||||
Services | Services | Services | Total | |||||||||||||||||||||||||||
Balance as of June 30, 2011 | $ | 1,935.0 | $ | 4.8 | $ | 1,133.8 | $ | 3,073.6 | $ | 1,935.0 | $ | 4.8 | $ | 1,133.8 | $ | 3,073.6 | ||||||||||||||
Additions and other adjustments, net | (13.0 | ) | - | (18.4 | ) | (31.4 | ) | 55.0 | - | 68.1 | 123.1 | |||||||||||||||||||
Currency translation adjustments | (34.0 | ) | - | (10.7 | ) | (44.7 | ) | (47.4 | ) | - | (19.3 | ) | (66.7 | ) | ||||||||||||||||
Balance as of September 30, 2011 | $ | 1,888.0 | $ | 4.8 | $ | 1,104.7 | $ | 2,997.5 | ||||||||||||||||||||||
Balance as of December 31, 2011 | $ | 1,942.6 | $ | 4.8 | $ | 1,182.6 | $ | 3,130.0 |
September 30, | June 30, | December 31, | June 30, | ||||||||||||
2011 | 2011 | 2011 | 2011 | ||||||||||||
Intangible assets: | |||||||||||||||
Software and software licenses | $ | 1,335.0 | $ | 1,322.4 | $ | 1,371.3 | $ | 1,322.4 | |||||||
Customer contracts and lists | 810.5 | 821.0 | 853.2 | 821.0 | |||||||||||
Other intangibles | 239.1 | 238.3 | 241.1 | 238.3 | |||||||||||
2,384.6 | 2,381.7 | 2,465.6 | 2,381.7 | ||||||||||||
Less accumulated amortization: | |||||||||||||||
Software and software licenses | (1,081.7 | ) | (1,062.1 | ) | (1,103.4 | ) | (1,062.1 | ) | |||||||
Customer contracts and lists | (451.9 | ) | (443.7 | ) | (464.9 | ) | (443.7 | ) | |||||||
Other intangibles | (164.3 | ) | (160.2 | ) | (165.8 | ) | (160.2 | ) | |||||||
(1,697.9 | ) | (1,666.0 | ) | (1,734.1 | ) | (1,666.0 | ) | ||||||||
Intangible assets, net | $ | 686.7 | $ | 715.7 | $ | 731.5 | $ | 715.7 | |||||||
Amount | Amount | |||||
Nine months ending June 30, 2012 | $ | 129.3 | ||||
Six months ending June 30, 2012 | $ | 92.3 | ||||
Twelve months ending June 30, 2013 | $ | 132.7 | $ | 149.2 | ||
Twelve months ending June 30, 2014 | $ | 102.2 | $ | 110.5 | ||
Twelve months ending June 30, 2015 | $ | 69.0 | $ | 83.1 | ||
Twelve months ending June 30, 2016 | $ | 53.0 | $ | 62.7 | ||
Twelve months ending June 30, 2017 | $ | 40.7 | $ | 51.4 |
December 31, | June 30, | ||||||||||||||
September 30, | June 30, | 2011 | 2011 | ||||||||||||
2011 | 2011 | ||||||||||||||
Industrial revenue bonds | $ | 21.6 | $ | 21.6 | $ | 21.6 | $ | 21.6 | |||||||
Secured financing | 14.9 | 15.4 | 14.4 | 15.4 | |||||||||||
36.5 | 37.0 | 36.0 | 37.0 | ||||||||||||
Less: current portion | (10.5 | ) | (2.8 | ) | (10.5 | ) | (2.8 | ) | |||||||
$ | 26.0 | $ | 34.2 | $ | 25.5 | $ | 34.2 | ||||||||
· | Stock Options.Stock options are granted to employees at exercise prices equal to the fair market value of the Company's common stock on the dates of grant. Stock options are issued under a grade vesting schedule. Options granted prior to |
· | Employee Stock Purchase Plan. The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to 95% of the market value for the Company's common stock on the last day of the offering period. This plan has been deemed non-compensatory and therefore, no compensation expense has been recorded. |
· | Restricted Stock. |
o | Time-Based Restricted Stock. The Company has issued time-based restricted stock to certain key employees. These shares are restricted as to transfer and in certain circumstances must be returned to the Company at the original purchase price. The Company records stock compensation expense relating to the issuance of restricted stock based on market prices on the date of grant on a straight-line basis over the period in which the transfer restrictions exist, which is up to five years from the date of grant. |
o | Performance-Based Restricted Stock. The performance-based restricted stock program has a one-year performance period, and a subsequent six-month service period. Under this program, the Company communicates "target awards" to employees at the beginning of the performance period and, as such, dividends are not paid in respect of the "target awards" during the performance period. After the performance period, if the performance targets are achieved, associates are eligible to receive dividends on shares awarded under the program. The performance target is based on earnings per share growth over the performance period, with possible payouts ranging from 0% to 150% of the "target awards." Stock-based compensation expense is measured based upon the fair value of the award on the grant date. Compensation expense is recognized on a straight-line basis over the vesting period of approximately 18 months, based upon the probability that the performance target will be met. |
Three Months Ended | ||||||
September 30, | ||||||
2011 | 2010 | |||||
Operating expenses | $ | 3.1 | $ | 2.0 | ||
Selling, general and administrative expenses | 12.7 | 9.7 | ||||
System development and programming costs | 2.8 | 2.2 | ||||
Total pretax stock-based compensation expense | $ | 18.6 | $ | 13.9 | ||
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating expenses | $ | 4.5 | $ | 4.6 | $ | 7.5 | $ | 6.6 | ||||||||
Selling, general and administrative expenses | 19.0 | 14.1 | 31.7 | 23.8 | ||||||||||||
System development and programming costs | 3.7 | 4.1 | 6.5 | 6.3 | ||||||||||||
Total pretax stock-based compensation expense | $ | 27.2 | $ | 22.8 | $ | 45.7 | $ | 36.7 |
Stock Options: | ||||||||
Number | Weighted | |||||||
of Options | Average Price | |||||||
(in thousands) | (in dollars) | |||||||
Options outstanding at | ||||||||
July 1, 2011 | 21,714 | $ | 40 | |||||
Options granted | 212 | $ | 47 | |||||
Options exercised | (2,538 | ) | $ | 52 | ||||
Options cancelled | (139 | ) | $ | 42 | ||||
Options outstanding at | ||||||||
December 31, 2011 | 19,249 | $ | 40 |
Number | Weighted | |||||
of Options | Average Price | |||||
(in thousands) | (in dollars) | |||||
Options outstanding at | ||||||
July 1, 2011 | 21,714 | $ | 40 | |||
Options granted | 200 | $ | 47 | |||
Options exercised | (1,005 | ) | $ | 51 | ||
Options canceled | (57 | ) | $ | 39 | ||
Options outstanding at | ||||||
September 30, 2011 | 20,852 | $ | 40 | |||
Performance-Based Restricted Stock:
21
The fair value of each stock option issued is estimated on the date of grant using a binomial option pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee exercise behavior. Expected volatilities utilized in the binomial model are based on a combination of implied market volatilities, historical volatility of the Company’s stock price and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of the stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding. The fair value for stock options granted was estimated at the date of grant using the following assumptions:
B. Pension Plans The components of net pension expense were as follows:
22 During the Note 13. Income Taxes The effective tax rate for the three months ended The effective tax rate for the six months ended December 31, 2011 and 2010 was 34.8% and 36.1%, respectively. The decrease in the effective tax rate was related to the availability of foreign tax credits, the expiration of certain Note 14. Commitments and Contingencies In September 2010, a purported class action lawsuit was filed against the Company in the Superior Court of the State of California, County of Los Angeles. The lawsuit was subsequently removed to the United States District Court, Central District of California, Western Division. The complaint alleges that the Company unlawfully handled certain client calls and seeks statutory damages. The services at issue were performed by an independent third-party vendor, and the Company believes that it has the contractual right to full indemnification from this vendor for any potential losses it might incur with respect to the matter. In April 2011, the Company and the third-party vendor entered into a class action settlement agreement to settle the matter with the plaintiff, which provides for a release of the Company from further claims related to On July 18, 2011, athenahealth, Inc. filed a complaint against ADP AdvancedMD, Inc. (“ADP AdvancedMD”), a subsidiary of the Company. The complaint alleges that ADP AdvancedMD’s activities in providing medical practice management and billing and revenue management software and associated services to physicians and medical practice managers infringe two patents owned by athenahealth, Inc. The complaint seeks monetary damages, injunctive relief, and costs. The Company has responded to the complaint, In June The Company is subject to various claims and litigation 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. At this time the Company is unable to estimate any possible loss, or 23 range of possible loss, with respect to the matters described above. This is primarily because these matters are still in early stages and involve complex issues subject to inherent uncertainty. There can be no assurance that these matters will be resolved in a manner that is not adverse to the Company. It is not the Company’s business practice to enter into off-balance sheet arrangements. The Company has obligations under various facilities and equipment leases and software license agreements that were disclosed in its Annual Report on Form 10-K for the year ended June 30, 2011. Note 15. Foreign Currency Risk Management Programs The Company transacts business in various foreign jurisdictions and is therefore exposed to market risk from changes in foreign currency exchange rates that could impact its consolidated results of operations, financial position or cash flows. The Company manages its exposure to these market risks through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not use derivative financial instruments for trading purposes. The Company had no derivative financial instruments outstanding at Note 16. Comprehensive Income
Note 17. Interim Financial Data by Segment Based upon similar economic characteristics and operational characteristics, the Company’s strategic business units have been aggregated into the following three reportable segments: Employer Services, PEO Services, and Dealer Services. The primary components of the “Other” segment are miscellaneous processing services, such as customer financing transactions, non-recurring gains and losses, results of operations of ADP Indemnity (a wholly-owned captive insurance company that provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services worksite employees) and certain expenses that have not been charged to the reportable segments, such as stock-based compensation expense. 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. The prior year reportable segments’ revenues and earnings before income taxes have been adjusted to reflect updated fiscal 2012 budgeted foreign exchange rates. In addition, there is a reconciling item for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services 24 at a standard rate of 4.5%. The reportable segments’ results also include an internal cost of capital charge related to the funding of acquisitions and other investments. All of these adjustments/charges are reconciling items to Segment Results:
25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of (Tabular dollars are presented in millions, except per share amounts) FORWARD-LOOKING STATEMENTS This report and other written or oral statements made from time to time by ADP may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature, and which may be identified by the use of words like "expects," "assumes," "projects," "anticipates," "estimates," "we believe," "could be" and other words of similar meaning, are forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of services and products; changes in laws regulating payroll taxes, professional employer organizations and employee benefits; overall market and economic conditions, including interest rate and foreign currency trends; competitive conditions; auto sales and related industry changes; employment and wage levels; changes in technology; availability of skilled technical 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 RESULTS OF OPERATIONS Executive Overview 26 Our business model remains strong with a high percentage of recurring revenues, excellent margins, the ability to generate consistent, healthy cash flows, strong client revenue retention, and low capital expenditure requirements. We invest our clients' funds in accordance with ADP's prudent and conservative investment guidelines where the safety, liquidity, and diversification of our clients’ funds are the foremost objectives of our investment strategy. The portfolio is predominantly invested in AAA/AA rated fixed-income securities. We continue to return excess cash to our shareholders through our share repurchase program and dividends. Our financial condition and balance sheet remain solid at Analysis of Consolidated Operations
27
Total Revenues Total revenues increased Total revenues for the three months ended December 31, 2011 include interest on funds held for clients of $117.9 million, as compared to $129.0 million for the three months ended December 31, 2010. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned to 3.0% during the three months ended December 31, 2011 as compared to 3.5% for the three months ended December 31, 2010, partially offset by an increase in our average client funds balance of 6%, to $15.6 billion, for the three months ended December 31, 2011. Total revenues increased $470.3 million, or 10%, to $5,105.5 million for the six months ended December 31, 2011, from $4,635.2 million for the six months ended December 31, 2010, due to an increase in revenues in Employer Services of 8%, or $271.0 million, to $3,577.5 million, PEO Services of 16%, or 28 $114.9 million, to $814.4 million, and Dealer Services of 12%, or $88.2 million, to $820.4 million. Total revenues would have increased approximately 8% without the impact of recently completed acquisitions. In addition, revenues increased Total revenues for the six months ended December 31, 2011 include interest on funds held for clients of $239.8 million, as compared to $255.8 million for the six months ended December 31, 2010. The decrease in the consolidated interest earned on funds held for clients resulted from the decrease in the average interest rate earned to 3.1% during the six months ended December 31, 2011 as compared to 3.6% for the six months ended December 31, 2010, partially offset by an increase in our average client funds balance of 8%, to $15.4 billion, for the six months ended December 31, 2011. Total Expenses Total expenses increased Our total costs of revenues increased $139.6 million, or 10%, to $1,519.9 million for the three months ended December 31, 2011, from $1,380.3 million for the three months ended December 31, 2010, due to an increase in our operating expenses of $134.1 million and an increase in systems development and programming expenses of $7.0 million. Our total costs of revenues increased $333.8 million, or 12%, to $3,026.0 million for the six months ended December 31, 2011, from $2,692.2 million for the six months ended December 31, 2010, due to an increase in our operating expenses of $310.0 million and an increase in systems development and programming expenses of $21.8 million. Operating expenses increased 29 Operating expenses increased $310.0 million, or 14%, for the six months ended December 31, 2011, as compared to the six months ended December 31, 2010 due to the increase in revenues described above, including the increases in PEO Services, which has pass-through costs that are re-billable and which includes costs for Systems development and programming expenses increased Systems development and programming expenses increased $21.8 million, or 8%, for the six months ended December 31, 2011, as compared to the six months ended December 31, 2010 due to businesses acquired of $10.6 million and higher development expenses. Selling, general and administrative expenses increased Selling, general and administrative expenses increased $81.0 million, or 7%, for the six months ended December 31, 2011, as compared to the six months ended December 31, 2010. The increase in expenses was due to higher selling expenses of $28.0 million resulting from increases in sales force headcount over prior year levels coupled with an increase in selling, general and administrative expenses of acquired businesses of $20.8 million. Additionally, selling, general and administrative expenses increased $10.5 million due to changes in foreign currency exchange rates. Other
30 Other income, net, Other income, net, increased $61.1 million for the six months ended December 31, 2011 as compared to the six months ended December 31, 2010. This increase was due to a gain of $66.0 million pertaining to the sale of assets related to rights and obligations to resell a third-party expense management platform during the six months ended December 31, 2011. Such increase was partially offset by the net activity related to our available-for-sale securities, including realized gains, realized losses and impairment losses, which together resulted in a decrease in other income, net of $9.0 million, and a decrease in interest income on corporate funds of $1.9 million during the six months ended December 31, 2011 as compared to the six months ended December 31, 2010. The decrease in interest income on corporate funds resulted from lower average interest rates from 2.8% for the six months ended December 31, 2010 to 2.3% for the six months ended December 31, 2011, partially offset by increasing average daily corporate funds which increased from $4.1 billion for the six months ended December 31, 2010 to $4.9 billion for the Earnings before Income Taxes Earnings before income taxes increased Earnings before income taxes increased $118.0 million, or 13%, from $921.0 million for the six months ended December 31, 2010, to $1,039.0 million for the six months ended December 31, 2011 due to the increase in revenues and the gain on sale of assets, partially offset by the increase in expenses, all of which were discussed above. Overall margin increased approximately 50 basis points for the six months ended December 31, 2011 and includes approximately 130 basis points of margin contribution related to the gain on the sale of assets and approximately 20 basis points of margin decrease attributable to acquisitions. Provision for Income Taxes The effective tax rate for the three months ended 31 The effective tax rate for the six months ended December 31, 2011 and 2010 was 34.8% and 36.1%, respectively. The decrease in the effective tax rate was related to the availability of foreign tax credits, the expiration of certain Net Earnings and Diluted Earnings per Share Net earnings increased The following table reconciles our results for the three and six months ended December 31, 2011 to adjusted results that exclude the sale of assets related to rights and obligations to resell a third-party expense management platform. We use certain adjusted results, among other measures, to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by us and improves our ability to understand our operating performance. Since adjusted earnings and adjusted diluted EPS are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation of, or as a substitute for, earnings and diluted EPS and they may not be comparable to similarly titled measures employed by other companies. Although we have presented our results for the three and six months ended December 31, 2011 adjusted to exclude the gain on the sale of assets discussed above, we do not expect this sale of assets to have a material impact on the results of our future operations. For the remainder of fiscal 2012, we would have expected to realize approximately $0.02 in diluted EPS related to the rights and obligations to resell the third-party expense management platform. 32
Net earnings, as adjusted, increased $23.7 million, or 8% to $333.8 million, for the three months ended December 31, 2011, from $310.1 million, as reported, for the three months ended December 31, 2010, and the related diluted earnings per share, as adjusted, increased 10%, to $0.68 for the three months ended December 31, 2011. The increase in diluted earnings per share, as adjusted, for the three months ended December 31, 2011 reflects the impact of fewer shares outstanding due to the repurchase of approximately 6.2 million shares during the six months ended December 31, 2011 and the repurchase of 14.2 million shares in the fiscal year ended June 30, 2011. Net earnings, as adjusted, increased $47.9 million, or 8% to $636.5 million, for the six months ended December 31, 2011, from $588.6 million, as reported, for the six months ended December 31, 2010, and the related diluted earnings per share, as adjusted, increased 8%, to $1.29 for the six months ended December 31, 2011. The increase in diluted earnings per share, as adjusted, for the six months ended December 31, 2011 reflects the impact of fewer shares outstanding due to the repurchase of approximately 6.2 million shares during the six months ended December 31, 2011 and the repurchase of 14.2 million shares in the fiscal year ended June 30, 2011. 33 Analysis of Reportable Segments
The prior year's reportable segment revenues and earnings before income taxes have been adjusted to reflect updated fiscal 2012 budgeted foreign exchange rates. This adjustment is made for management purposes so that the reportable segments' revenues are presented on a consistent basis without the impact of changes in foreign currency exchange rates. This adjustment is a reconciling item to revenues and earnings before income taxes and is eliminated in consolidation. Certain revenues and expenses are charged to the reportable segments at a standard rate for management reasons. Other costs are charged to the reportable segments based on management’s responsibility for the applicable costs. The primary components of the “Other” segment are the results of operations of ADP Indemnity (a wholly-owned captive insurance company that provides workers’ compensation and employer’s liability deductible reimbursement insurance protection for PEO Services worksite employees), non-recurring gains and losses, miscellaneous processing services, such as customer financing transactions, and certain expenses that have not been charged to the reportable segments, such as stock-based compensation expense. In addition, the reconciling items include an adjustment for the difference between actual interest income earned on invested funds held for clients and interest credited to Employer Services and PEO Services at a standard rate of 4.5%. This allocation is made for management reasons so that the reportable segments’ results are presented on a consistent basis without the impact of fluctuations in interest rates. This allocation is a reconciling item to our reportable segments’ revenues and earnings before income taxes and is eliminated in consolidation. 34 Finally, the reportable segments’ results also include a cost of capital charge related to the funding of acquisitions and other investments. This charge is a reconciling item to earnings before income taxes and is eliminated in consolidation. Employer Services Revenues Employer Services' revenues increased increases. Employer Services' revenues increased $271.0 million, or 8%, to $3,577.5 million for the six months ended December 31, 2011 as compared to the six months ended December 31, 2010. Revenues for our Employer Services business would have increased approximately 6% without the impact of acquisitions. Revenues increased due to new business started during the first six months from new business sales growth, an increase in the number of employees on our clients’ payrolls, and the impact of price increases. Pays per control, which represents the number of employees on our clients' payrolls as measured on a same-store-sales basis utilizing a representative subset of payrolls ranging from small to large businesses that are reflective of a broad range of U.S. geographic regions, increased 2.8% for the six months ended December 31, 2011. Earnings before Income Taxes Employer Services’ earnings before income taxes increased Employer Services’ earnings before income taxes increased $36.6 million, or 4%, to $857.0 million for the six months ended December 31, 2011 as compared to the six months ended December 31, 2010. The increase was due to the increase in revenues of $271.0 million discussed above, which was partially offset by an increase in expenses of $234.4 million. In addition to an increase in expenses related to increased revenues, expenses increased for the six months ended December 31, 2011 due to increases in sales and service headcount over the same period prior year levels coupled with the effects of acquisitions. Overall margin decreased approximately 80 basis points from 24.8% to 24.0% for the six months ended December 31, 2011 as compared to the six months ended December 31, 2010, with approximately 70 basis points of margin decline attributable to acquisitions. 35 PEO Services Revenues PEO Services' revenues increased Earnings before Income Taxes PEO Services’ earnings before income taxes increased of PEO Services’ earnings before income taxes increased $14.9 million, or 23%, to $78.9 million for the six months ended December 31, 2011, as compared to the six months ended December 31, 2010. Earnings before income taxes increased due to growth in earnings related to the increase in the average number of worksite employees. Overall margin increased approximately 60 basis points to 9.7% for the six months ended December 31, 2011 from 9.1% for the six months ended December 31, 2010 resulting from a higher average number of worksite employees. Dealer Services Revenues Dealer Services' revenues increased 36 December 31, 2010. The growth in our key products included increased users of our Front Office Solutions, including our customer relationship management (“CRM”) solutions, growth in hosted IP telephony, as well as an increase in credit report and vehicle registration transaction revenues and increased activity in Digital Marketing Solutions. Dealer Services' revenues increased $88.2 million, or 12%, to $820.4 million for the six months ended December 31, 2011 as compared to the six months ended December 31, 2010. Dealer Services acquisitions made over the prior twelve months, including Cobalt, increased revenues $42.9 million for the Earnings before Income Taxes Dealer Services' earnings before income taxes increased Dealer Services' earnings before income taxes increased $26.4 million, or 25%, to $133.6 million for the six months ended December 31, 2011, as compared to the six months ended December 31, 2010. The increase was due to the increase in revenues of $88.2 million discussed above and was partially offset by higher compensation costs. Overall margin increased approximately 170 basis points from 14.6% to 16.3% for the six months ended December 31, 2011, as compared to the six months ended December 31, 2010, which includes approximately 40 basis points of margin decrease related to acquisitions. In addition, overall margin increased approximately 100 basis points due to acquisition-related costs incurred during the six months ended December 31, 2010 related to our acquisition of Cobalt in the prior year. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At Our principal sources of liquidity for operations are derived from cash generated through operations and through corporate cash and marketable securities on hand. We continued to generate positive cash flows from operations during the 37 U.S. and Canadian short-term repurchase agreements to meet short-term funding requirements related to client funds obligations. Net cash flows provided by operating activities were Net cash flows provided by investing activities were Net cash flows used in financing activities were Our U.S. short-term funding requirements related to client funds are sometimes obtained through a short-term commercial paper program, which provides for the issuance of up to $6.75 billion in aggregate maturity value of commercial paper. Our commercial paper program is rated A-1+ by Standard and Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. For the three months ended Our U.S. and Canadian short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities. These agreements generally have terms ranging from overnight to up to five business days. We have $2.0 billion available to us on a committed basis under these reverse repurchase agreements. For the three months ended 38 rates of 0.7% and 0.5%, respectively. For the six months ended December 31, 2011 and 2010, the Company had average outstanding balances under reverse repurchase agreements of $384.2 million and $575.3 million, respectively, at weighted average interest rates of 0.5% and 0.4%, respectively. We have successfully borrowed through the use of reverse repurchase agreements on an as needed basis to meet short-term funding requirements related to client funds obligations. At We have a $2.0 billion, 364-day credit agreement with a group of lenders that matures in June 2012. In addition, we have a four-year $3.25 billion credit facility maturing in June 2015 that contains an accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. We also have an existing $1.5 billion three-year credit facility that matures in June 2013 that also contains an accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the federal funds effective rate, or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. We had no borrowings through Our investment portfolio does not contain any asset-backed securities with underlying collateral of subprime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, asset-backed commercial paper, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income Capital expenditures for the In the normal course of business, we enter into contracts in which we make representations and warranties that relate to the performance of our services and products. We do not expect any material losses related to such representations and warranties. 39 Quantitative and Qualitative Disclosures about Market Risk Our overall investment portfolio is comprised of corporate investments (cash and cash equivalents, short-term marketable securities, and long-term marketable securities) and client funds assets (funds that have been collected from clients but not yet 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 repurchases of common stock for treasury 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 goals. Consistent with those goals, 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, other than those for which the Company had the intent to sell at December 31, 2011, with a maximum maturity of 10 years at the time of purchase and money market securities and other cash equivalents. At 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. 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 $6.75 billion commercial paper program (rated A-1+ by Standard and Poor’s and Prime-1 (P1) by Moody’s, the highest possible credit rating), our ability to execute reverse repurchase transactions ($2.0 billion of which is available on a committed basis) and available borrowings under our $6.75 billion committed revolving credit facilities. However, the 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. 40 We have established credit quality, maturity, and exposure limits for our investments. The minimum allowed credit rating at time of purchase for corporate bonds is BBB and for asset-backed and commercial mortgage-backed securities is Details regarding our overall investment portfolio are as follows:
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 the 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 annualized interest rates earned on our entire portfolio decreased 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. 41 87% of our available-for-sale securities held a AAA or AA amounts that can be invested in any security other than U.S. and Canadian government or government agency 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 use derivative financial instruments as risk management tools and not for trading purposes. We had no derivative financial instruments outstanding at New Accounting Pronouncements In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale is based, in part, on whether the entity maintains effective control over the financial asset. ASU 2011-03 removes from the assessment of effective control: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee, and the related requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The adoption of ASU 2011-03 will not have an impact on our consolidated results of operations, financial condition, or cash flows. In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 requires expansion of the disclosures required for “level 3” measurements and provides updates to the existing measurement guidance. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of ASU 2011-04 will not have an impact on our consolidated results of operations, financial condition, or cash flows. In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-05 will not have an impact on our consolidated results of operations, financial condition, or cash flows. In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment”. ASU 2011-08 amends the guidance in ASC 350-20 on testing goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that 42 December 15, 2011 and early adoption is permitted. The adoption of ASU 2011-08 will not have Item 3. Quantitative and Qualitative Disclosures About Market 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 There were no changes in the Company's internal control over financial reporting that occurred during the three and six months ended 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 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. Item 1A. Risk 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, 2011. 43 Item 2. Unregistered Sales of Equity Securities and Use of Issuer Purchases of Equity Securities
(1) During the three months ended (2) The Company received the Board of Directors' approval to repurchase shares of our common stock as follows:
There is no expiration date for the common stock repurchase plan. 44 Item 6.
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.
45 |