Automatic Data Processing Inc. (ADP)

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. ADP is subject to the continuous examination of the income tax returns by the Internal Revenue Service ("IRS") and other tax authorities.

There is a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax return. Specifically, the likelihood of an entity's tax benefits being sustained must be "more likely than not," assuming that these positions will be examined by taxing authorities with full knowledge of all relevant information prior to recording the related tax benefit in the financial statements. If a tax position drops below the "more likely than not" standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the "more likely than not" standard has been met when developing the provision for income taxes. As of June 30, 2018 and 2017, ADP's liabilities for unrecognized tax benefits, which include interest and penalties, were $45.2 million and $74.6 million, respectively.

If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, favorable settlements related to various jurisdictions and tax periods could increase earnings by up to $2 million and expected cash payments could be up to $25 million in the next twelve months. The liability related to cash payments expected to be paid within the next 12 months has been reclassified from other liabilities to current liabilities on the Consolidated Balance Sheets. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. ADP continually assesses the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability, and deferred taxes in the period in which the facts that give rise to a revision become known.

Source: Automatic Data Processing Inc., Annual Report

Automatic Data Processing Inc., income tax expense (benefit), continuing operations

USD $ in thousands

Source: Based on data from Automatic Data Processing Inc. Annual Reports

Item	Description	The company
Current	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	Automatic Data Processing Inc.'s current increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Deferred	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	Automatic Data Processing Inc.'s deferred increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Provision for income taxes	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	Automatic Data Processing Inc.'s provision for income taxes increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Automatic Data Processing Inc., effective income tax rate (EITR) reconciliation

Source: Based on data from Automatic Data Processing Inc. Annual Reports

Item	Description	The company
Effective tax rate	A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations.	Automatic Data Processing Inc.'s effective tax rate declined from 2016 to 2017 and from 2017 to 2018.

Automatic Data Processing Inc., components of deferred tax assets and liabilities

USD $ in thousands

Source: Based on data from Automatic Data Processing Inc. Annual Reports

Item	Description	The company
Deferred tax assets	The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies.	Automatic Data Processing Inc.'s deferred tax assets increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Deferred tax assets, net	The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value.	Automatic Data Processing Inc.'s deferred tax assets, net increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Net deferred tax assets (liabilities)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	Automatic Data Processing Inc.'s net deferred tax assets (liabilities) increased from 2016 to 2017 and from 2017 to 2018.

Automatic Data Processing Inc., deferred tax assets and liabilities, classification

USD $ in thousands

Source: Based on data from Automatic Data Processing Inc. Annual Reports

Item	Description	The company
Current deferred tax assets (included in Other current assets)	The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Current deferred tax liabilities (included in Accrued expenses and other current liabilities)	Represents the current portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A current taxable temporary difference is a difference between the tax basis and the carrying amount of a current asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.
Long-term deferred tax assets (included in Other assets)	The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Automatic Data Processing Inc.'s long-term deferred tax assets (included in Other assets) declined from 2016 to 2017 and from 2017 to 2018.
Long-term deferred tax liabilities	Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Automatic Data Processing Inc.'s long-term deferred tax liabilities declined from 2016 to 2017 and from 2017 to 2018.

Automatic Data Processing Inc., adjustments to financial data

USD $ in thousands

Automatic Data Processing Inc., adjusted ratios

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Automatic Data Processing Inc.'s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Automatic Data Processing Inc.'s adjusted net profit margin improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Automatic Data Processing Inc.'s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Automatic Data Processing Inc.'s adjusted financial leverage declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Automatic Data Processing Inc.'s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Automatic Data Processing Inc.'s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.

2018 Calculations

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Automatic Data Processing Inc.'s adjusted current ratio deteriorated from 2016 to 2017 and from 2017 to 2018.

2018 Calculations

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Automatic Data Processing Inc.'s adjusted net profit margin improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

2018 Calculations

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Automatic Data Processing Inc.'s adjusted total asset turnover improved from 2016 to 2017 and from 2017 to 2018.

2018 Calculations

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Automatic Data Processing Inc.'s adjusted financial leverage declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

2018 Calculations

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Automatic Data Processing Inc.'s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.

2018 Calculations

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Automatic Data Processing Inc.'s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018.