Edgar Filing: AUTOMATIC DATA PROCESSING INC

decemberq2011.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 1-5397

______________

AUTOMATIC DATA PROCESSING, INC.

(Exact name of registrant as specified in its charter)

______________

Delaware	22-1467904
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

One ADP Boulevard, Roseland, New Jersey	07068
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (973) 974-5000

______________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the registrant’s common stock as of January 31, 2011 was 496,416,668

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Earnings

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010			2009
REVENUES:
Revenues, other than interest on funds
held for clients and PEO revenues	$	1,921.0		$	1,761.4		$	3,684.8		$	3,435.7
Interest on funds held for clients		129.0			127.7			255.8			255.6
PEO revenues (A)		355.7			308.9			694.6			602.8
TOTAL REVENUES		2,405.7			2,198.0			4,635.2			4,294.1

EXPENSES:
Costs of revenues:
Operating expenses		1,173.6			1,046.9			2,290.3			2,050.4
Systems development and programming costs		142.1			120.5			277.0			246.2
Depreciation and amortization		64.6			59.8			124.9			120.2
TOTAL COSTS OF REVENUES		1,380.3			1,227.2			2,692.2			2,416.8

Selling, general and administrative expenses		570.1			518.9			1,085.7			1,010.5
Interest expense		2.8			2.5			5.6			5.6
TOTAL EXPENSES		1,953.2			1,748.6			3,783.5			3,432.9

Other income, net		(32.1	)		(29.6	)		(69.3	)		(63.4	)

EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES		484.6			479.0			921.0			924.6

Provision for income taxes		174.5			164.0			332.4			326.6

NET EARNINGS FROM CONTINUING OPERATIONS	$	310.1		$	315.0		$	588.6		$	598.0

Earnings from discontinued operations, net of provision
for income taxes of $0.3 for the three months ended
December 31, 2009 and $0.8 for the six months ended		-			0.8			-			1.9
December 31, 2009

NET EARNINGS	$	310.1		$	315.8		$	588.6		$	599.9

Basic Earnings Per Share from Continuing Operations	$	0.63		$	0.63		$	1.20		$	1.19
Basic Earnings Per Share from Discontinued Operations		-			-			-			-
BASIC EARNINGS PER SHARE	$	0.63		$	0.63		$	1.20		$	1.20

Diluted Earnings Per Share from Continuing Operations	$	0.62		$	0.62		$	1.19		$	1.18
Diluted Earnings Per Share from Discontinued Operations		-			-			-			-
DILUTED EARNINGS PER SHARE	$	0.62		$	0.62		$	1.19		$	1.19

Basic weighted average shares outstanding		492.0			502.0			491.7			501.7
Diluted weighted average shares outstanding		496.9			506.2			495.9			504.8

Dividends declared per common share	$	0.3600		$	0.3400		$	0.7000		$	0.6700

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $4,231.3 and $3,814.5 for the three months ended December 31, 2010 and 2009, respectively, and $7,582.7 and $6,615.6 for the six months ended December 31, 2010 and 2009, respectively.

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

	December 31, 2010			June 30, 2010
Assets
Current assets:
Cash and cash equivalents	$	1,305.7		$	1,643.3
Short-term marketable securities		36.3			27.9
Accounts receivable, net		1,136.6			1,127.7
Other current assets		662.1			673.4
Assets held for sale		12.3			11.8
Total current assets before funds held for clients		3,153.0			3,484.1
Funds held for clients		24,218.5			18,832.6
Total current assets		27,371.5			22,316.7
Long-term marketable securities		99.3			104.3
Long-term receivables, net		127.7			129.4
Property, plant and equipment, net		676.9			673.8
Other assets		823.3			712.3
Goodwill		2,878.8			2,383.3
Intangible assets, net		682.8			542.4
Total assets	$	32,660.3		$	26,862.2

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	116.2		$	150.0
Accrued expenses and other current liabilities		726.6			771.0
Accrued payroll and payroll-related expenses		423.8			448.5
Dividends payable		174.3			164.5
Short-term deferred revenues		337.7			321.5
Income taxes payable		32.2			60.0
Total current liabilities before client funds obligations		1,810.8			1,915.5
Client funds obligations		23,682.1			18,136.7
Total current liabilities		25,492.9			20,052.2
Long-term debt		35.1			39.8
Other liabilities		530.3			528.0
Deferred income taxes		361.6			306.4
Long-term deferred revenues		464.8			456.9
Total liabilities		26,884.7			21,383.3

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 December 31, 2010 and June 30, 2010;
outstanding, 494.2 and 492.0 shares at December 31, 2010
and June 30, 2010, respectively		63.9			63.9
Capital in excess of par value		464.8			493.0
Retained earnings		11,495.0			11,252.0
Treasury stock - at cost: 144.5 and 146.7 shares
at December 31, 2010 and June 30, 2010, respectively		(6,445.6	)		(6,539.5	)
Accumulated other comprehensive income		197.5			209.5
Total stockholders’ equity		5,775.6			5,478.9
Total liabilities and stockholders’ equity	$	32,660.3		$	26,862.2

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

	Six Months Ended December 31,
	2010			2009
Cash Flows from Operating Activities:
Net earnings	$	588.6		$	599.9
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Depreciation and amortization		158.2			154.8
Deferred income taxes		17.2			42.7
Stock-based compensation expense		36.7			36.7
Net pension expense		20.2			17.4
Net realized (gain)/loss from the sales of marketable securities		(15.4	)		1.9
Net amortization of premiums and accretion of discounts on available-for-sale securities		27.1			29.2
Impairment losses on available-for-sale securities		-			5.3
Impairment losses on assets held for sale		8.6			-
Gains on sales of buildings		(1.8	)		(1.5	)
Other		33.6			31.5
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures of businesses:
Decrease/(Increase) in accounts receivable		73.3			(30.3	)
(Increase)/Decrease in other assets		(79.4	)		144.8
Decrease in accounts payable		(58.7	)		(16.3	)
Decrease in accrued expenses and other liabilities		(160.9	)		(343.0	)
Operating activities of discontinued operations		-			(0.2	)
Net cash flows provided by operating activities		647.3			672.9

Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities		(2,567.7	)		(1,481.7	)
Proceeds from the sales and maturities of corporate and client funds marketable securities		1,559.4			1,693.0
Net increase in restricted cash and cash equivalents held to satisfy client funds obligations		(4,444.5	)		(4,938.9	)
Capital expenditures		(80.7	)		(54.3	)
Additions to intangibles		(35.8	)		(67.8	)
Acquisitions of businesses, net of cash acquired		(588.8	)		(3.8	)
Proceeds from the sale of property, plant and equipment		13.1			3.1
Other		6.9			8.3
Investing Activities of discontinued operations		-			(0.1	)
Net cash flows used in investing activities		(6,138.1	)		(4,842.2	)

Cash Flows from Financing Activities:
Net increase in client funds obligations		5,444.1			4,687.6
Payments of debt		(4.7	)		(0.9	)
Net repayment of commercial paper		-			(730.0	)
Repurchases of common stock		(102.1	)		(151.9	)
Proceeds from stock purchase plan and exercises of stock options		128.6			151.4
Dividends paid		(335.6	)		(330.8	)
Net cash flows provided by financing activities		5,130.3			3,625.4

Effect of exchange rate changes on cash and cash equivalents		22.9			19.7

Net change in cash and cash equivalents		(337.6	)		(524.2	)

Cash and cash equivalents, beginning of period		1,643.3			2,265.3

Cash and cash equivalents, end of period	$	1,305.7		$	1,741.1

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Tabular dollars in millions, except per share amounts)

(Unaudited)

Note 1. Basis of Presentation

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

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates.

Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the twelve months ended June 30, 2010 (“fiscal 2010”).

Note 2. New Accounting Pronouncements

On July 1, 2010, the company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2009-13, “Multiple Deliverable Revenue Arrangements,” and ASU 2009-14, “Certain Revenue Arrangements that Include Software Elements.” ASU 2009-13 modifies the guidance related to accounting for arrangements with multiple deliverables by providing an alternative when vendor specific objective evidence (“VSOE”) or third-party evidence (“TPE”) does not exist to determine the selling price of a deliverable. The alternative when VSOE or TPE does not exist is management’s best estimate of the selling price of the deliverable. Consideration for multiple deliverables is then allocated based upon the relative selling price of the deliverables and revenue is recognized as earned for each deliverable. ASU 2009-14 modifies the scope of the software revenue recognition guidance to exclude (a) non-software components of tangible products and (b) software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s functionality. The adoption of ASU 2009-13 and ASU 2009-14 did not have a material impact on the Company’s consolidated results of operations, financial condition or cash flows.

In December 2010, the Company adopted ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires greater transparency about a company’s allowance for credit losses and the credit quality of its financing receivables. The guidance is intended to provide disclosures to help facilitate the evaluation of the company’s credit risk, how that risk is analyzed and the reasons for changes in the allowance for credit losses. The adoption of ASU 2010-20 did not have an impact on the Company's consolidated results of operations, financial condition or cash flows.

In December 2010, the FASB issued ASU 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations." ASU 2010-29 requires an entity to disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective prospectively for business combinations that occur on or after the beginning of the first annual reporting period beginning after December 15, 2010. The Company does not expect that the adoption of ASU 2010-29 will have an impact on its consolidated results of operations, financial condition or cash flows.

Note 3. Earnings per Share (“EPS”)

	Basic		Effect of Employee Stock Option Shares		Effect of Employee Restricted Stock Shares		Diluted

Three months ended December 31,

2010
Net earnings from continuing operations	$	310.1	$	-	$	-	$	310.1
Weighted average shares (in millions)		492.0		3.6		1.3		496.9
EPS from continuing operations	$	0.63					$	0.62

2009
Net earnings from continuing operations	$	315.0	$	-	$	-	$	315.0
Weighted average shares (in millions)		502.0		2.7		1.5		506.2
EPS from continuing operations	$	0.63					$	0.62

Six months ended December 31,

2010
Net earnings from continuing operations	$	588.6	$	-	$	-	$	588.6
Weighted average shares (in millions)		491.7		2.9		1.3		495.9
EPS from continuing operations	$	1.20					$	1.19

2009
Net earnings from continuing operations	$	598.0	$	-	$	-	$	598.0
Weighted average shares (in millions)		501.7		1.6		1.5		504.8
EPS from continuing operations	$	1.19					$	1.18

Options to purchase 3.7 million and 15.6 million shares of common stock for the three months ended December 31, 2010 and 2009, respectively, and 8.0 million and 22.5 million shares of common stock for the six months ended December 31, 2010 and 2009, were excluded from the calculation of diluted earnings per share because their exercise prices exceeded the average market price of outstanding common shares for the respective periods.

Note 4. Other Income, net

	Three Months Ended December 31,						Six Months Ended December 31,
	2010			2009			2010			2009
Interest income on corporate funds	$	(27.9	)	$	(31.2	)	$	(58.7	)	$	(67.5	)
Realized gains on available-for-sale securities		(5.4	)		(2.2	)		(17.6	)		(10.2	)
Realized losses on available-for-sale securities		1.8			4.8			2.2			12.1
Impairment losses on available-for-sale securities		-			-			-			5.3
Impairment losses on assets held for sale		-			-			8.6			-
Gains on sales of buildings		-			-			(1.8	)		(1.5	)
Other, net		(0.6	)		(1.0	)		(2.0	)		(1.6	)

Other income, net	$	(32.1	)	$	(29.6	)	$	(69.3	)	$	(63.4	)

Proceeds from sales and maturities of available-for-sale securities were $1,559.4 million and $1,693.0 million for the six months ended December 31, 2010 and 2009, respectively.

At September 30, 2010, the Company reclassified assets related to two buildings as assets held for sale on the Consolidated Balance Sheets. Such assets were previously reported in property, plant and equipment, net on the Consolidated Balance Sheets. As the carrying amount of the assets held for sale exceeded their fair value less costs to sell, the Company recorded impairment losses of $8.6 million for the six months ended December 31, 2010. These two buildings continue to be recorded in assets held for sale at December 31, 2010.

During the six months ended December 31, 2010, the Company sold two buildings and, as a result, recorded a gain of $1.8 million. During the six months ended December 31, 2009, the Company sold a building and, as a result, recorded a gain of $1.5 million.

At September 30, 2009, the Company concluded that it had the intent to sell certain securities for which unrealized losses of $5.3 million were previously recorded in accumulated other comprehensive income on the Consolidated Balance Sheets. As such, the Company realized impairment losses of $5.3 million during the six months ended December 31, 2009. Additionally, during the fourth quarter of fiscal 2010, the Company concluded that it had the intent to sell certain securities with unrealized losses and recorded an impairment charge of $9.1 million during the three months ended June 30, 2010. As of December 31, 2010, the Company sold all securities that the Company previously concluded it had the intent to sell.

The Company has an outsourcing agreement with Broadridge Financial Solutions, Inc. ("Broadridge") pursuant to which the Company provides data center outsourcing services, primarily consisting of information technology and service delivery network services. As a result of this agreement, the Company recognized income of $27.4 million and $26.2 million for the three months ended December 31, 2010 and 2009, respectively, which is offset by expenses directly associated with providing such services of $26.8 million and $25.6 million, respectively, both of which were recorded in other income, net, on the Statements of Consolidated Earnings. The Company recognized income of $54.7 million and $52.2 million for the six months ended December 31, 2010 and 2009, respectively, which is offset by expenses directly associated with providing such services of $53.5 million and $51.1 million. The Company had a receivable on the Consolidated Balance Sheets from Broadridge for the services under this agreement of $9.2 million and $8.9 million as of December 31, 2010 and June 30, 2010, respectively. In fiscal 2010, Broadridge notified the Company that it would not extend the outsourcing agreement beyond its current expiration date of June 30, 2012. The Company does not currently anticipate this will have a material impact on its results of operations.

Note 5. Acquisitions

On August 16, 2010, the Company acquired 100% of the outstanding shares of Cobalt, a leading provider of digital marketing solutions for the automotive industry that aligns with Dealer Services’ global layered applications strategy and strongly supports Dealer Services’ long-term growth strategy, for approximately $405.0 million in cash, net of cash acquired.

The preliminary purchase price allocation for Cobalt is as follows:

Accounts receivable, net	$	42.6
Goodwill		315.8
Identifiable intangible assets		111.6
Other assets		57.4
Total assets acquired	$	527.4

Total liabilities acquired	$	100.7

The preliminary allocation of the purchase price is based upon estimates and assumptions that are subject to change within the purchase price allocation period, which is generally one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to the measurement of certain assets and liabilities.

The Company determined the purchase price allocations for this acquisition based on estimates of the fair value of tangible and intangible assets acquired and liabilities assumed, utilizing recognized valuation techniques, including the income and market approaches. Goodwill for Cobalt, which is not deductible for tax purposes, resulted from the expected impact to Dealer Services’ long-term growth strategy. Intangible assets for Cobalt, which totaled $111.6 million, included customer contracts and lists, software and trademarks that are being amortized over a weighted average life of approximately 11 years.

In addition to Cobalt, the Company acquired five businesses during the six months ended December 31, 2010 for approximately $183.8 million, net of cash acquired. These acquisitions resulted in approximately $127.7 million of goodwill. Intangible assets acquired, which totaled approximately $80.7 million for these five acquisitions, included customer contracts and lists, software and trademarks that are being amortized over a weighted average life of approximately 9 years. These five acquisitions were not material individually or in the aggregate to the Company’s results of operations, financial position or cash flows.

Note 6. Divestitures

On March 24, 2010, the Company completed the sale of the non-core Commercial Systems business (the “Commercial business”) for approximately $21.6 million in cash. The Commercial business was previously reported in the Dealer Services segment. In connection with the disposal of this business, the Company classified the results of this business as discontinued operations for the three and six months ended December 31, 2009.

Operating results for discontinued operations were as follows:

	Three Months Ended		Six Months Ended
	December 31, 2009		December 31, 2009

Revenues	$	6.4	$	13.1

Earnings from discontinued operations before income taxes		1.1		2.7
Less: Provision for income taxes		0.3		0.8
Net earnings from discontinued operations	$	0.8	$	1.9

There were no assets or liabilities of discontinued operations as of December 31, 2010 or June 30, 2010.

Note 7. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at December 31, 2010 and June 30, 2010 were as follows:

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Type of issue:
Money market securities and other cash
equivalents	$	9,229.9	$	-	$	-		$	9,229.9
Available-for-sale securities:
U.S. Treasury and direct obligations of
U.S. government agencies		6,340.1		232.6		(30.5	)		6,542.2
Corporate bonds		5,500.8		237.6		(28.0	)		5,710.4
Asset-backed securities		637.9		33.3		-			671.2
Canadian government obligations and
Canadian government agency obligations		1,031.1		25.8		(0.9	)		1,056.0
Other securities		2,362.1		98.4		(10.4	)		2,450.1

Total available-for-sale securities		15,872.0		627.7		(69.8	)		16,429.9

Total corporate investments and funds
held for clients	$	25,101.9	$	627.7	$	(69.8	)	$	25,659.8

	June 30, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Type of issue:
Money market securities and other cash
equivalents	$	5,091.1	$	-	$	-		$	5,091.1
Available-for-sale securities:
U.S. Treasury and direct obligations of
U.S. government agencies		5,631.0		280.7		(0.2	)		5,911.5
Corporate bonds		5,080.7		261.2		(9.0	)		5,332.9
Asset-backed securities		923.5		45.3		-			968.8
Canadian government obligations and
Canadian government agency obligations		998.6		33.9		-			1,032.5
Other securities		2,172.3		100.0		(1.0	)		2,271.3

Total available-for-sale securities		14,806.1		721.1		(10.2	)		15,517.0

Total corporate investments and funds
held for clients	$	19,897.2	$	721.1	$	(10.2	)	$	20,608.1

At December 31, 2010, U.S. Treasury and direct obligations of U.S. government agencies primarily include debt directly issued by Federal Home Loan Banks, Federal Home Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae") with fair values of $3,282.8 million, $1,003.3 million and $839.0 million, respectively. At June 30, 2010, U.S. Treasury and direct obligations of U. S. government agencies primarily include debt directly issued by Federal Home Loan Banks, Freddie Mac and Fannie Mae with fair values of $2,615.5 million, $1,136.1 million and $933.6 million, respectively. U.S. Treasury and direct obligations of U.S. government agencies represent senior, unsecured, non-callable debt that carries a credit rating of primarily AAA, as rated by Moody's and Standard & Poor's and has maturities ranging from January 2011 through December 2020.

At December 31, 2010, asset-backed securities primarily include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, rate reduction and auto loan receivables with fair values of $369.5 million, $239.5 million and $61.7 million, respectively. At June 30, 2010, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, rate reduction and auto loan receivables with fair values of $548.6 million, $307.8 million and $112.4 million, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All collateral on such asset-backed securities has performed as expected through December 31, 2010.

At December 31, 2010, other securities and their fair value primarily represent AAA rated commercial mortgage-backed securities of $630.6 million, municipal bonds of $497.4 million, Canadian provincial bonds of $410.4 million, supranational bonds of $356.8 million, sovereign bonds of $254.5 million, AAA rated mortgage-backed securities of $147.7 million that are guaranteed by Fannie Mae and Freddie Mac and corporate bonds backed by the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program of $130.3 million. At June 30, 2010, other securities and their fair value primarily represent AAA rated commercial mortgage-backed securities of $707.4 million, municipal bonds of $469.5 million, supranational bonds of $322.7 million, Canadian provincial bonds of $308.5 million, sovereign bonds of $181.8 million, corporate bonds backed by the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program of $131.3 million and AAA rated mortgage-backed securities of $131.0 million that are guaranteed by Fannie Mae and Freddie Mac. The Company's AAA rated mortgage-backed securities represent an undivided beneficial ownership interest in a group or pool of one or more residential mortgages. These securities are collateralized by the cash flows of 15-year and 30-year residential mortgages and are guaranteed by Fannie Mae and Freddie Mac as to the timely payment of principal and interest.

Classification of corporate investments on the Consolidated Balance Sheets is as follows:

	December 31, 2010		June 30, 2010

Corporate investments:
Cash and cash equivalents	$	1,305.7	$	1,643.3
Short-term marketable securities		36.3		27.9
Long-term marketable securities		99.3		104.3
Total corporate investments	$	1,441.3	$	1,775.5

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

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

	December 31, 2010		June 30, 2010

Funds held for clients:
Restricted cash and cash equivalents held
to satisfy client funds obligations	$	7,924.2	$	3,447.8
Restricted short-term marketable securities held
to satisfy client funds obligations		2,943.6		2,768.7
Restricted long-term marketable securities held
to satisfy client funds obligations		13,350.7		12,616.1
Total funds held for clients	$	24,218.5	$	18,832.6

Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll and tax payment obligations and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling $23,682.1 million and $18,136.7 million as of December 31, 2010 and June 30, 2010, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purposes of satisfying the client funds obligations. The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash inflows and outflows related to client funds investments with original maturities of 90 days or less on a net basis within net increase in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash flows related to the cash received from and paid on behalf of clients on a net basis within net increase in client funds obligations in the financing section of the Statements of Consolidated Cash Flows.

Approximately 86% of the available-for-sale securities were rated AAA or AA at December 31, 2010, as rated by Moody's, Standard & Poor's and, for Canadian securities, Dominion Bond Rating Service. All available-for-sale securities were rated as investment grade at December 31, 2010.

Available-for-sale securities as of December 31, 2010 that have been in an unrealized loss position, all for periods of less than 12 months, are as follows:

	Unrealized			Fair market
	losses			value

U.S. Treasury and direct obligations of
U.S. government agencies	$	(30.5	)	$	1,080.0
Corporate bonds		(28.0	)		870.5
Canadian government obligations and
Canadian government agency obligations		(0.9	)		69.2
Asset backed securities		-			3.4
Other securities		(10.4	)		379.9

	$	(69.8	)	$	2,403.0

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 2010 are as follows:

	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	$	-		$	28.0	$	(0.2	)	$	6.5	$	(0.2	)	$	34.5
Corporate bonds		(9.0	)		210.5		-			-		(9.0	)		210.5
Asset backed securities		-			2.4		-			-		-			2.4
Other securities		(1.0	)		22.7		-			-		(1.0	)		22.7

	$	(10.0	)	$	263.6	$	(0.2	)	$	6.5	$	(10.2	)	$	270.1

Expected maturities of available-for-sale securities at December 31, 2010 are as follows:

Due in one year or less	$	2,979.9
Due after one year to two years		3,212.2
Due after two years to three years		2,509.9
Due after three years to four years		2,234.3
Due after four years		5,493.6

Total available-for-sale securities	$	16,429.9

At December 31, 2010, the Company concluded that it did not have the intent to sell securities in an unrealized loss position as of December 31, 2010 and that the Company would not be required to sell such securities in an unrealized loss position before recovery. Additionally, the Company evaluated the securities in an unrealized loss position to determine the nature of the losses, utilizing a variety of quantitative and qualitative factors, including whether the Company expects to collect all amounts due under the contractual terms of the security, information about current and past events of the issuer, and the length of time and the extent to which the fair value has been less than the cost basis. At December 31, 2010, the Company concluded that unrealized losses on available-for-sale securities held at December 31, 2010 were not credit losses and were attributable to other factors, primarily changes in interest rates. As a result, the Company concluded that the $69.8 million in unrealized losses on such securities should be recorded in accumulated other comprehensive income on the Consolidated Balance Sheets at December 31, 2010.

Note 8. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date and is based upon the Company’s principal or most advantageous market for a specific asset or liability.

US GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

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: quoted prices for similar assets or liabilities in active markets quoted prices for identical or similar assets or liabilities in markets that are not active inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3	Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about the assumptions 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).

Available-for-sale securities included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service. To determine the fair value of our Level 2 investments, a variety of inputs are utilized, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment information. Over 99% of our Level 2 investments are valued utilizing inputs obtained from a pricing service. The Company reviews the values generated by the independent pricing service for reasonableness by comparing the valuations received from the independent pricing service to valuations from at least one other observable source. The Company has not adjusted the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 3.

The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The significant input with the lowest level priority is used to determine the applicable level in the fair value hierarchy.

The following table presents the Company's assets measured at fair value on a recurring basis at December 31, 2010. Included in the table are available-for-sale securities within corporate investments of $135.6 million and funds held for clients of $16,294.3 million.

	Level 1		Level 2		Level 3		Total

U.S Treasury and direct obligations of
U.S. government agencies	$	-	$	6,542.2	$	-	$	6,542.2
Corporate bonds		-		5,710.4		-		5,710.4
Asset-backed securities		-		671.2		-		671.2
Canadian government obligations and
Canadian government agency obligations		-		1,056.0		-		1,056.0
Other securities		15.9		2,434.2		-		2,450.1
Total available-for-sale securities	$	15.9	$	16,414.0	$	-	$	16,429.9

The following table presents the Company’s assets measured at fair value on a recurring basis at June 30, 2010. Included in the table are available-for-sale securities within corporate investments of $132.2 million and funds held for clients of $15,384.8 million.

	Level 1		Level 2		Level 3		Total

U.S Treasury and direct obligations of
U.S. government agencies	$	-	$	5,911.4	$	-	$	5,911.4
Corporate bonds		-		5,332.9		-		5,332.9
Asset-backed securities		-		968.9		-		968.9
Canadian government obligations and
Canadian government agency obligations		-		1,032.5		-		1,032.5
Other securities		8.0		2,263.3		-		2,271.3
Total available-for-sale securities	$	8.0	$	15,509.0	$	-	$	15,517.0

Note 9. Receivables

Accounts receivable, net, includes the Company’s trade receivables, which are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts. The Company’s receivables also include notes receivable for the financing of the sale of computer systems, primarily from automotive, heavy truck and power sports dealers. Notes receivable are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts and unearned income. The allowance for doubtful accounts is the Company's best estimate of probable credit losses related to trade receivables and notes receivable based upon the aging of the receivables, historical collection data, internal assessments of credit quality and the economic conditions in the automobile industry, as well as in the economy as a whole. The Company charges off uncollectable amounts against the reserve in the period in which it determines they are uncollectable. Unearned income on notes receivable is amortized using the effective interest method.

The Company’s receivables, whose carrying value approximates fair value, are as follows:

	December 31, 2010						June 30, 2010
	Current			Long-term			Current			Long-term

Trade receivables	$	1,105.2		$	-		$	1,076.3		$	-
Notes receivable		96.3			150.9			110.3			155.0
Less:
Allowance for doubtful accounts -Trade receivables		(47.3	)		-			(39.6	)		-
Allowance for doubtful accounts - Notes receivable		(8.4	)		(14.2	)		(9.4	)		(16.1	)
Unearned income-notes receivable		(9.2	)		(9.0	)		(9.9	)		(9.5	)

Total	$	1,136.6		$	127.7		$	1,127.7		$	129.4

The Company determines the allowance for doubtful accounts related to notes receivable based upon a specific reserve for known collection issues, as well as a non-specific reserve based upon aging, both of which are based upon history of such losses and current economic conditions. The allowance for doubtful accounts for notes receivable based upon our methodology is as follows:

	December 31, 2010
	Notes Receivable				Reserve
	Current		Long-term		Current		Long-term
Specific Reserve	$	2.7	$	4.7	$	2.7	$	4.7
Non-specific Reserve		93.6		146.2		5.7		9.5
Total	$	96.3	$	150.9	$	8.4	$	14.2

	June 30, 2010
	Notes Receivable				Reserve
	Current		Long-term		Current		Long-term
Specific Reserve	$	3.8	$	6.6	$	3.8	$	6.6
Non-specific Reserve		106.5		148.4		5.6		9.5
Total	$	110.3	$	155.0	$	9.4	$	16.1

The rollforward of the allowance for doubtful accounts related to notes receivable is as follows:

	Current			Long-term
Balance at June 30, 2010	$	9.4		$	16.1
Incremental provision		0.9			1.5
Recoveries		(0.9	)		(1.7	)
Chargeoffs		(1.0	)		(1.7	)

Balance at December 31, 2010	$	8.4			14.2

As of December 31, 2010 and June 30, 2010, the allowance for doubtful accounts as a percentage of notes receivable is approximately 9% and 10%, respectively.

Notes receivable aged over 30 days past due are considered delinquent. Notes receivable aged over 60 days past due and notes receivable with known collection issues are placed on non-accrual status. Interest revenue is not recognized on notes receivables while on non-accrual status. Cash payments received on non-accrual receivables is applied towards principal. When notes receivable on non-accrual status are again less than 60 days past due, interest revenue for notes receivable is resumed. At December 31, 2010, the Company had $2.9 million in notes receivable on non-accrual status, including $0.8 million of notes receivable aged over 60 days past due.

On an ongoing basis, the Company evaluates credit quality of its financing receivables, utilizing aging of receivables, collection experience and charge-offs. In addition, the Company evaluates economic conditions in the automotive industry and specific dealership matters, such as bankruptcy. As events related to a specific client dictate, the credit quality of a client is reevaluated.

The aging of the notes receivable past due at December 31, 2010 is as follows:

		Over 30 days to 60 days				Over 60 days
Notes Receivables		$	1.8			$	0.8

At December 31, 2010, approximately 99% of notes receivable are current. During the six months ended December 31, 2010, the charge-offs as a percentage of notes receivable were 1%.

Note 10. Goodwill and Intangible Assets, net

Changes in goodwill for the six months ended December 31, 2010 are as follows:

	Employer		PEO		Dealer
	Services		Services		Services		Total

Balance as of June 30, 2010	$	1,611.3	$	4.8	$	767.2	$	2,383.3
Additions and other adjustments, net		112.8		-		332.6		445.4
Currency translation adjustments		34.3		-		15.8		50.1

Balance as of December 31, 2010	$	1,758.4	$	4.8	$	1,115.6	$	2,878.8

Components of intangible assets, net, are as follows:

	December 31,			June 30,
	2010			2010
Intangible assets:
Software and software licenses	$	1,232.4		$	1,160.0
Customer contracts and lists		786.0			640.3
Other intangibles		235.7			209.5
		2,254.1			2,009.8
Less accumulated amortization:
Software and software licenses		(1,007.6	)		(946.0	)
Customer contracts and lists		(410.7	)		(375.6	)
Other intangibles		(153.0	)		(145.8	)
		(1,571.3	)		(1,467.4	)
Intangible assets, net	$	682.8		$	542.4

Other intangibles consist primarily of purchased rights, covenants not to compete, patents and trademarks (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 8 years (3 years for software and software licenses, 10 years for customer contracts and lists, and 9 years for other intangibles). Amortization of intangible assets totaled $45.2 million and $38.1 million for the three months ended December 31, 2010 and 2009, respectively, and totaled $85.4 million and $76.1 million for the six months ended December 31, 2010 and 2009, respectively.

Estimated future amortization expense of the Company's existing intangible assets is as follows:

	Amount
Six months ending June 30, 2011	$	88.3
Twelve months ending June 30, 2012	$	151.8
Twelve months ending June 30, 2013	$	108.7
Twelve months ending June 30, 2014	$	74.1
Twelve months ending June 30, 2015	$	58.1
Twelve months ending June 30, 2016	$	41.9

The Company has not incurred significant costs to renew or extend the term of acquired intangible assets during the six months ended December 31, 2010.

Note 11. Short-term Financing

The Company has a $2.5 billion, 364-day credit agreement with a group of lenders that matures in June 2011. In addition, the Company has a three-year $1.5 billion credit facility maturing in June 2013 that contains an accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. The Company also has an existing $2.25 billion five-year credit facility that matures in June 2011 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 the 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 to provide funding for general corporate purposes, if necessary. The Company had no borrowings through December 31, 2010 under the credit agreements.

The Company’s 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 $6.25 billion in aggregate maturity value of commercial paper. The Company’s 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. At December 31, 2010 and June 30, 2010, the Company had no commercial paper outstanding. For the three months ended December 31, 2010 and 2009, the Company’s average borrowings were $2.3 billion and $2.2 billion, respectively, at a weighted average interest rate of 0.2% for both periods. For the six months ended December 31, 2010 and 2009, the Company's average borrowings were $2.3 billion and $2.4 billion, respectively, at a weighted average interest rate of 0.2% for both periods. The weighted average maturity of the Company’s commercial paper during each of the three and six months ended December 31, 2010 and 2009 was less than two days.

The Company’s 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. These agreements are collateralized principally by government and government agency securities. These agreements generally have terms ranging from overnight to up to five business days. The Company has $2 billion available to it on a committed basis under these reverse repurchase agreements. At December 31, 2010 and June 30, 2010, there were no outstanding obligations under reverse repurchase agreements. For the three months ended December 31, 2010 and 2009, the Company had average outstanding balances under reverse repurchase agreements of $541.7 million and $477.8 million, respectively, at weighted average interest rates of 0.5% and 0.2%, respectively. For the six months ended December 31, 2010 and 2009, the Company had average outstanding balances under reverse repurchase agreements of $575.3 million and $495.2 million, respectively, at weighted average interest rates of 0.4% and 0.2%, respectively.

Note 12. Debt

Components of long-term debt are as follows:

	December 31,			June 30,
	2010			2010

Industrial revenue bonds	$	21.6		$	25.4
Secured financing		16.3			17.2
		37.9			42.6
Less: current portion		(2.8	)		(2.8	)
	$	35.1		$	39.8

The fair value of the industrial revenue bonds and other debt, included above, approximates carrying value.

Note 13. Employee Benefit Plans

A. Stock Plans. The Company recognizes stock-based compensation expense in net earnings based on the fair value of the award on the date of grant. Stock-based compensation consists of the following:

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 July 1, 2008 generally vest ratably over five years and have a term of 10 years. Options granted after July 1, 2008 generally vest ratably over four years and have a term of 10 years. Compensation expense for stock options is recognized over the requisite service period for each separately vesting portion of the stock option award.

Employee Stock Purchase Plan.

Prior to January 1, 2009, the Company offered an employee stock purchase plan that allowed eligible employees to purchase shares of common stock at a price equal to 85% of the market value for the common stock at the date the purchase price for the offering was determined. No further compensation expense related to this stock purchase plan was recorded after the completion of the vesting period of the final offering under such plan on December 31, 2009.

Subsequent to June 30, 2009, 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.

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.

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 a 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 any shares awarded under the program. The performance target is based on EPS 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 terms of approximately 18 months, based upon the probability the performance target will be met.

The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan and restricted stock awards. Stock-based compensation expense of $22.8 million and $19.3 million was recognized in earnings from continuing operations for the three months ended December 30, 2010 and 2009, respectively, as well as related tax benefits of $8.5 million and $5.7 million, respectively. Stock-based compensation expense of $36.7 million and $36.7 million was recognized in earnings from continuing operations for the six months ended December 31, 2010 and 2009, respectively, as well as related tax benefits of $13.7 million and $10.8 million, respectively.

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2010		2009		2010		2009

Operating expenses	$	4.6	$	3.7	$	6.6	$	6.5
Selling, general and administrative expenses		14.1		12.7		23.8		25.4
System development and programming costs		4.1		2.9		6.3		4.8
Total pretax stock-based compensation expense	$	22.8	$	19.3	$	36.7	$	36.7

As of December 31, 2010, the total remaining unrecognized compensation cost related to non-vested stock options and restricted stock awards was $10.3 million and $69.5 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 1.2 years and 1.4 years, respectively.

During the six months ended December 31, 2010, the following activity occurred under our existing plans:

Stock Options:

	Number			Weighted
	of Options			Average Price
	(in thousands)			(in dollars)

Options outstanding at
July 1, 2010		35,000		$	41
Options granted		748		$	27
Options exercised		(2,907	)	$	38
Options canceled		(3,126	)	$	53

Options outstanding at
December 31, 2010		29,715		$	40

Performance-Based Restricted Stock:

	Number
	of Shares
	(in thousands)

Restricted shares outstanding
at July 1, 2010	1,112
Restricted shares granted	1,144
Restricted shares vested	(11)
Restricted shares forfeited	(29)

Restricted shares outstanding
at December 31, 2010	2,216

The fair value of each stock option issued prior to January 1, 2005 was estimated on the date of grant using a Black-Scholes option pricing model. For stock options issued on or after January 1, 2005, the fair value of each stock option was 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 grants 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 with the following assumptions:

	Six Months Ended
	December 31,
	2010			2009
Risk-free interest rate		1.4%-1.6	%		2.3%-2.6	%
Dividend yield		3.3	%		3.2%-3.4	%
Weighted average volatility factor		24.9	%		28.3%-30.4	%
Weighted average expected life (in years)		5.0			5.0
Weighted average fair value (in dollars)	$	6.21		$	7.73

B. Pension Plans

The components of net pension expense were as follows:

	Three months ended						Six months ended
	December 31,						December 31,
	2010			2009			2010			2009
Service cost – benefits earned during the period	$	13.1		$	11.9		$	26.2		$	23.8
Interest cost on projected benefits		14.1			14.8			28.1			29.6
Expected return on plan assets		(22.1	)		(19.1	)		(44.1	)		(38.3	)
Net amortization and deferral		5.0			1.1			10.0			2.3
Net pension expense	$	10.1		$	8.7		$	20.2		$	17.4

During the six months ended December 31, 2010, the Company contributed $154.2 million to the pension plans and expects to contribute approximately $4.0 million during the remainder of the twelve months ended June 30, 2011 (“fiscal 2011”).

Note 14. Income Taxes

The effective tax rate for the three months ended December 31, 2010 and 2009 was 36.0% and 34.2%, respectively. The effective tax rate for the three months ended December 31, 2009 includes a reduction in the provision for income taxes of $12.2 million in connection with the resolution of certain tax matters.

The effective tax rate for the six months ended December 31, 2010 and 2009 was 36.1% and 35.3%, respectively. The effective tax rate for the six months ended December 31, 2009 includes a reduction in the provision for income taxes of $12.2 million in connection with the resolution of certain tax matters.

Note 15. Commitments and Contingencies

In September 2010, a purported class action lawsuit was filed against the Company in 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 Company intends to defend this matter vigorously and to seek an early dismissal of the claims. Moreover, 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. While it is too early to determine the potential for exposure to the claims asserted by the class action, the Company does not believe the claims, if adversely determined, would ultimately have a material adverse effect on the Company in light of the indemnification from the independent third party vendor.

The Company is subject to various other claims and litigation in the normal course of business. The Company does not believe that the resolution of these matters will have a material impact on the consolidated financial statements.

In the normal course of business, the Company also enters into contracts in which it makes representations and warranties that relate to the performance of the Company's services and products. The Company does not expect any material losses related to such representations and warranties.

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, 2010.

Note 16. Foreign Currency Risk Management Programs

The Company is exposed to market risk from changes in foreign currency exchange rates that could impact our 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 uses derivative financial instruments as risk management tools and not for trading purposes.

The Company had no derivative financial instruments outstanding at December 31, 2010 or June 30, 2010.

Note 17. Comprehensive Income

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
Net earnings	$	310.1		$	315.8		$	588.6		$	599.9
Other comprehensive income:
Currency translation adjustments		4.7			18.3			84.4			60.8
Unrealized gain (loss) on available-for-sale
securities, net of tax		(190.7	)		(47.8	)		(97.0	)		92.8
Pension liability adjustment, net of tax		1.0			0.7			0.6			1.5
Comprehensive income	$	125.1		$	287.0		$	576.6		$	755.0

Note 18. Interim Financial Data by Segment

The Company's strategic business units are aggregated into the following three reportable segments: Employer Services, PEO Services and Dealer Services. The primary components of "Other" are financing transactions related to the sale of computer systems, corporate allocations and certain expenses that have not been charged to the reportable segments, including 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 from continuing operations before income taxes have been adjusted to reflect updated budgeted foreign exchange rates for fiscal 2011. 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 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 the Company's reportable segments' revenues and/or earnings from continuing operations before income taxes and results in the elimination of these adjustments/charges in consolidation.

Segment Results:

	Revenues
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009

Employer Services	$	1,663.0		$	1,555.6		$	3,222.2		$	3,032.2
PEO Services		358.2			311.2			699.5			607.4
Dealer Services		375.3			298.5			711.7			600.0
Other		3.1			4.1			6.5			8.9
Reconciling items:
Foreign exchange		42.3			52.2			59.6			83.9
Client fund interest		(36.2	)		(23.6	)		(64.3	)		(38.3	)
Total	$	2,405.7		$	2,198.0		$	4,635.2		$	4,294.1

	Earnings from Continuing Operations before Income Taxes
	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009

Employer Services	$	431.5		$	416.4		$	808.2		$	784.5
PEO Services		35.8			32.5			64.1			67.9
Dealer Services		57.5			53.6			108.3			98.4
Other		(34.0	)		(32.1	)		(51.6	)		(48.1	)
Reconciling items:
Foreign exchange		1.8			5.8			2.9			7.2
Client fund interest		(36.2	)		(23.6	)		(64.3	)		(38.3	)
Cost of capital charge		28.2			26.4			53.4			53.0
Total	$	484.6		$	479.0		$	921.0		$	924.6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Tabular dollars are presented in millions, except per share amounts)

FORWARD-LOOKING STATEMENTS

This 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 products and services; 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 associates and the impact of new acquisitions and divestitures. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. These risks and uncertainties, along with the risk factors discussed under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, should be considered in evaluating any forward-looking statements contained herein.

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. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010 in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

Executive Overview

While ADP’s fiscal 2010 was a challenging year and our results were impacted by the economic downturn, including high unemployment levels, record-low interest rates and volatile financial markets, during the first half of fiscal 2011, we have seen positive trends in our key business metrics. The improving ec