Income Tax Accounting Policy
Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Analyst Adjustments: Removal of Deferred Taxes
Adjusted Ratios: Removal of Deferred Taxes (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

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. Judgment is required in addressing the future tax consequences of events that have been recognized in ADP’s Consolidated Financial Statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). ADP is subject to the continuous examination of the income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact ADP’s Consolidated Financial Statements.

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, 2019 and 2018, ADP’s liabilities for unrecognized tax benefits, which include interest and penalties, were $54.2 million and $45.2 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 $3 million and expected cash payments could be up to $10 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 adjusts 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: 10-K (filing date: 2019-08-09).

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

US$ in thousands

	12 months ended	Jun 30, 2019		Jun 30, 2018		Jun 30, 2017		Jun 30, 2016		Jun 30, 2015		Jun 30, 2014
	Federal
	Foreign
	State
	Current
	Federal
	Foreign
	State
	Deferred
	Provision for income taxes

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

Item	Description	The company
Current	Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations.	Automatic Data Processing Inc.’s current declined from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.
Deferred	Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations.	Automatic Data Processing Inc.’s deferred declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Provision for income taxes	Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Automatic Data Processing Inc.’s provision for income taxes declined from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.

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

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	U.S. federal statutory tax rate
	State taxes, net of federal tax benefit
	U.S. tax on foreign income
	Utilization of foreign tax credits
	Section 199, Qualified production activities
	Section 199, Qualified production activities and research tax credit refund claim, net of reserves
	Resolution of tax matters, Section 199 Qualified production activities and research tax credit refund claim
	Foreign rate differential
	Excess tax benefit, Stock-based compensation
	Other
	Effective tax rate

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

Item	Description	The company
Effective tax rate	Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.	Automatic Data Processing Inc.’s effective tax rate declined from 2017 to 2018 and from 2018 to 2019.

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

US$ in thousands

		Jun 30, 2019		Jun 30, 2018		Jun 30, 2017		Jun 30, 2016		Jun 30, 2015		Jun 30, 2014
	Accrued expenses not currently deductible
	Stock-based compensation expense
	Foreign tax credits
	Net operating losses
	Unrealized investment losses, net
	Retirement Benefits
	Other
	Deferred tax assets
	Valuation allowances
	Deferred tax assets, net
	Prepaid retirement benefits
	Deferred revenue
	Fixed and intangible assets
	Prepaid expenses
	Unrealized investment gains, net
	Tax on unrepatriated earnings
	Other
	Deferred tax liabilities
	Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

Item	Description	The company
Deferred tax assets	Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Automatic Data Processing Inc.’s deferred tax assets declined from 2017 to 2018 and from 2018 to 2019.
Deferred tax assets, net	Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards.	Automatic Data Processing Inc.’s deferred tax assets, net declined from 2017 to 2018 and from 2018 to 2019.
Net deferred tax assets (liabilities)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting.	Automatic Data Processing Inc.’s net deferred tax assets (liabilities) increased from 2017 to 2018 but then declined significantly from 2018 to 2019.

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

US$ in thousands

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Current deferred tax assets (included in Other current assets)
	Current deferred tax liabilities (included in Accrued expenses and other current liabilities)
	Long-term deferred tax assets (included in Other assets)
	Long-term deferred tax liabilities

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

Item	Description	The company
Long-term deferred tax assets (included in Other assets)	Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent.	Automatic Data Processing Inc.’s long-term deferred tax assets (included in Other assets) declined from 2017 to 2018 and from 2018 to 2019.
Long-term deferred tax liabilities	Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent.	Automatic Data Processing Inc.’s long-term deferred tax liabilities declined from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.

Automatic Data Processing Inc., adjustments to financial data

US$ in thousands

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Adjustment to Current Assets
	Current assets (as reported)
	Less: Current deferred tax assets, net
	Current assets (adjusted)
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Current deferred tax assets, net
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Current Liabilities
	Current liabilities (as reported)
	Less: Current deferred tax liabilities, net
	Current liabilities (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Current deferred tax liabilities, net
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Stockholders’ Equity
	Stockholders’ equity (as reported)
	Less: Net deferred tax assets (liabilities)
	Stockholders’ equity (adjusted)
	Adjustment to Net Earnings
	Net earnings (as reported)
	Add: Deferred income tax expense (benefit)
	Net earnings (adjusted)

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

Automatic Data Processing Inc., Financial Data: Reported vs. Adjusted

Automatic Data Processing Inc., adjusted ratios

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	Current Ratio
	Reported current ratio
	Adjusted current ratio
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

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 2017 to 2018 and from 2018 to 2019.
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 deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
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 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.
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 increased from 2017 to 2018 but then declined significantly from 2018 to 2019.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity.	Automatic Data Processing Inc.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Automatic Data Processing Inc.’s adjusted ROA deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Automatic Data Processing Inc., Ratios: Reported vs. Adjusted

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Current assets
	Current liabilities
	Ratio
	Current ratio¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted current assets
	Adjusted current liabilities
	Ratio
	Adjusted current ratio²

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= hidden ÷ hidden = hidden

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= hidden ÷ hidden = hidden

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 2017 to 2018 and from 2018 to 2019.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Net earnings
	Revenues
	Ratio
	Net profit margin¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted net earnings
	Revenues
	Ratio
	Adjusted net profit margin²

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

¹ Net profit margin = 100 × Net earnings ÷ Revenues
= 100 × hidden ÷ hidden = hidden

² Adjusted net profit margin = 100 × Adjusted net earnings ÷ Revenues
= 100 × hidden ÷ hidden = hidden

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 deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Revenues
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Revenues
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

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 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Total assets
	Stockholders’ equity
	Ratio
	Financial leverage¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted total assets
	Adjusted stockholders’ equity
	Ratio
	Adjusted financial leverage²

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity
= hidden ÷ hidden = hidden

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= hidden ÷ hidden = hidden

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 increased from 2017 to 2018 but then declined significantly from 2018 to 2019.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Net earnings
	Stockholders’ equity
	Ratio
	ROE¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted net earnings
	Adjusted stockholders’ equity
	Ratio
	Adjusted ROE²

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

¹ ROE = 100 × Net earnings ÷ Stockholders’ equity
= 100 × hidden ÷ hidden = hidden

² Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted stockholders’ equity
= 100 × hidden ÷ hidden = hidden

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 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

		Jun 30, 2019	Jun 30, 2018	Jun 30, 2017	Jun 30, 2016	Jun 30, 2015	Jun 30, 2014
	As Reported
	Selected Financial Data (US$ in thousands)
	Net earnings
	Total assets
	Ratio
	ROA¹
	Adjusted for Deferred Taxes
	Selected Financial Data (US$ in thousands)
	Adjusted net earnings
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-08-09), 10-K (filing date: 2018-08-03), 10-K (filing date: 2017-08-04), 10-K (filing date: 2016-08-05), 10-K (filing date: 2015-08-07), 10-K (filing date: 2014-08-08).

2019 Calculations

¹ ROA = 100 × Net earnings ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

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 deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

	Automatic Data Processing Inc.	Other companies (not purchased previously)
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Common-Size Financial Statements
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Discounted Cash Flow (DCF) Valuation
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Long-term Trends
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Common-Size Financial Statements
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Discounted Cash Flow (DCF) Valuation
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Analysis
Financial Reporting Quality

Automatic Data Processing Inc. (ADP)

Analysis of Income Taxes

Income Tax Accounting Policy

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Analyst Adjustments: Removal of Deferred Taxes

Automatic Data Processing Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Automatic Data Processing Inc., Ratios: Reported vs. Adjusted

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)