# AUTOMATIC DATA PROCESSING INC (ADP) FY 2026 MD&A

Verbatim Item 7 Management's Discussion and Analysis from AUTOMATIC DATA PROCESSING INC's 10-K for fiscal year 2026.

SEC filing source: https://www.sec.gov/Archives/edgar/data/8670/000000867026000030/adp-20260630.htm
Accession: 0000008670-26-000030
Filing date: 2026-08-05
Report date: 2026-06-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ADP/
All MD&A years: /company/ADP/mda/
Previous year: /company/ADP/mda/fy2025/ (FY 2025)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Tabular dollars are presented in millions, except per share amounts

The following section discusses our year ended June 30, 2026 (“fiscal 2026”), as compared to year ended June 30, 2025 (“fiscal 2025”). A detailed review of our fiscal 2025 performance compared to our fiscal 2024 performance is set forth in Part II, Item 7 of our Form 10-K for the year ended June 30, 2025.

FORWARD-LOOKING STATEMENTS

This document and other written or oral statements made from time to time by Automatic Data Processing, Inc., its subsidiaries and variable interest entity (“ADP” or the “Company”) may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words like “outlook,” “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,” “could,” “is designed to” and other words of similar meaning, are forward-looking statements. These statements are based on management’s expectations and assumptions and depend upon or refer to future events or conditions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements or that could contribute to such difference include: ADP's success in obtaining and retaining clients, and selling additional services to clients; the pricing of products and services; the success of our new solutions; our ability to respond successfully to changes in technology, including artificial intelligence; compliance with existing or new legislation or

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regulations; changes in, or interpretations of, existing legislation or regulations; overall market, political and economic conditions, including interest rate and foreign currency trends and inflation; competitive conditions; our ability to maintain our current credit ratings and the impact on our funding costs and profitability; security or cyber breaches, including as a result of artificial intelligence, fraudulent acts, and system interruptions and failures; employment and wage levels; availability of skilled associates; the impact of new acquisitions and divestitures; the impact of any uncertainties related to major natural disasters or catastrophic events; and supply-chain disruptions. The factors identified above are not exhaustive. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. These risks and uncertainties, along with the risk factors discussed under “Item 1A. Risk Factors”, and in other written or oral statements made from time to time by ADP, should be considered in evaluating any forward-looking statements contained herein.

NON-GAAP FINANCIAL MEASURES

In addition to our U.S. GAAP results, we use adjusted results and other non-GAAP metrics to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods. Adjusted EBIT, adjusted EBIT margin, adjusted net earnings, adjusted diluted earnings per share, adjusted effective tax rate and organic constant currency are all non-GAAP financial measures. Please refer to the accompanying financial tables in the “Non-GAAP Financial Measures” section for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their nearest comparable GAAP financial measures.

EXECUTIVE OVERVIEW

As a global leader in HR and payroll solutions, ADP continuously aims to solve complex business challenges for our clients and their workers. Our Human Capital Management ("HCM") solutions, which include both software and outsourcing services, are designed to help our clients manage their workforce through a dynamic business and regulatory landscape and the changing world of work. We see tremendous opportunity ahead as we focus on our three key Strategic Priorities: Leading with Best-in-Class HCM technology, Providing Unmatched Expertise and Outsourcing Solutions, and Leveraging our Global Scale for the Benefit of our Clients.

During fiscal 2026, we made meaningful progress on our Strategic Priorities. We continued to leverage our data advantages, domain expertise, and trusted brand to lead the HCM industry's AI transformation. ADP Assist became increasingly embedded in our clients' workflows, delivering meaningful time savings and improved accuracy. Since launching ADP Assist agents in January, we steadily expanded their availability across our payroll, benefits, HR, and compliance solutions, making AI-powered HCM agents accessible to nearly all of our more than 1.1 million clients. We also launched a dedicated space within ADP Marketplace for our partners' AI agents, further expanding our AI ecosystem. Additionally, we continued deploying AI tools across our sales, service, and research and development functions to improve the client experience and drive internal productivity gains. During the year, we experienced strong enterprise sales momentum for ADP Lyric HCM and the ADP WorkForce Suite, as our unified global payroll, global HR, and global time solutions continued to resonate with clients. Finally, we remained focused on delivering value through our global scale by providing compliant HCM solutions, local expertise, and trusted relationships wherever our clients operate.

Highlights from the year ended June 30, 2026 include:

•Revenue growth of 7% to $21,947.4 million; 6% growth on an organic constant currency

•Earnings before income taxes margin expansion of 30 bps, and adjusted EBIT margin expansion of 80 bps

•Diluted and adjusted diluted earnings per share ("EPS") growth of 10% and 11%, respectively, to $10.94 and $11.12, respectively

•Cash returned via shareholder friendly actions of $4.7B, including $2.6B of dividends and $2.1B of share repurchases

For fiscal 2026, we delivered strong revenue growth of 7%, 6% growth on an organic constant currency basis. Our United States pays per control metric, which represents the approximate growth in the number of employees on ADP clients' processed payrolls in the United States when measured on a same-store-sales basis for a subset of Employer Services clients ranging from small to large businesses, grew 1% for the year ended June 30, 2026 as compared to the year ended June 30, 2025. PEO average worksite employees increased 2% for the year ended June 30, 2026, as compared to the year ended June 30, 2025. Additionally, our ES new business bookings grew 6% in fiscal 2026, and our ES client revenue retention was 92.1%. These results are a testament to the meaningful investments we have made in our solutions and the efforts of our associates to deliver exceptional levels of client service.

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We have a strong business model, generating significant cash flows with low capital intensity, and offer a suite of products that provide critical support to our clients’ HCM functions. We generate sufficient free cash flow to satisfy our cash dividend and our modest debt obligations, which enables us to absorb the impact of downturns and remain steadfast in our long-term strategy and commitments to shareholder friendly actions. We are committed to building upon our past successes by investing in research and development to enhance our products and services and by driving continuous improvement in the way we operate. Our financial condition remains solid at June 30, 2026 and we remain well positioned to support our associates and our clients.

RESULTS AND ANALYSIS OF CONSOLIDATED OPERATIONS

Total Revenues

For the year ended June 30:

[[GREPCENT_TABLE]]
[["","Years Ended"],["","June 30,"],["","2026","","2025"],["Total Revenues","$","21,947.4","","","$","20,560.9"],["YoY Growth","7","%","","7","%"],["YoY Growth, Organic Constant Currency","6","%","","7","%"]]
[[/GREPCENT_TABLE]]

Total revenues increased in fiscal 2026 due to new business started from new business bookings, strong client revenue retention, an increase in zero-margin benefits pass-throughs of $318.3 million, an increase in pricing, a 1% year-over-year growth impact of foreign currency, and an increase in interest on funds held for clients of $165.7 million.

Total revenues for fiscal 2026 include interest on funds held for clients of $1,354.8 million, as compared to $1,189.1 million in fiscal 2025. The increase in interest earned on funds held for clients resulted from an increase in our average client funds balances of 7.4% to $40.4 billion in fiscal 2026 as compared to fiscal 2025, coupled with an increase in our average interest rate earned to 3.4% in fiscal 2026, as compared to 3.2% in fiscal 2025.

Total Expenses

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[[/GREPCENT_TABLE]]

For the year ended June 30:

Operating expenses increased in fiscal 2026 due to an increase of $318.3 million in PEO Services zero-margin benefits pass-through costs to $4,607.3 million in fiscal 2026 from $4,289.0 million in fiscal 2025. Additionally, operating expenses increased by $188.9 million due to higher service and implementation costs in support of our growing revenue, $74.4 million million primarily due to higher hosting, cloud-based service, and software license costs in support of our products and solutions, and by $37.1 million due to an increase in costs related to workers' compensation coverage and state unemployment taxes for worksite employees.

Research and development expenses increased in fiscal 2026 due to increased costs to develop, support, and maintain our new and existing products, including the integration costs associated with the WorkForce Software acquisition.

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Depreciation and amortization increased in fiscal 2026 due to the amortization of investments in internally developed software primarily for our products and solutions, intangible assets acquired in the WorkForce Software acquisition, and purchased software, partially offset by lower amortization of customer contracts and lists.

Selling, general, and administrative expenses increased in fiscal 2026 primarily due to increases in selling and marketing expenses of $241.4 million as a result of investments in our sales organization, an increase in costs related to non-recurring, broad-based, company-wide initiatives of $67.2 million and a non-recurring net legal settlement of $18.0 million.

Interest expense increased in fiscal 2026 primarily due to net increases in interest expense of $25.3 million related to the senior notes issued in fiscal 2026 and 2025, offset by the redemption of a senior note in fiscal 2025. These increases were partially offset by a decrease of $22.8 million related to commercial paper and reverse repurchase borrowings as a result of decreases in average interest rates on commercial paper issuances and reverse repurchases of 80 and 70 basis points, respectively, offset by an increase in average daily commercial paper borrowings and average reverse repurchase outstanding balances of $0.1 billion and $0.6 billion, respectively, as compared to fiscal 2025.

Other (Income)/Expense, net

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Interest income on corporate funds increased in fiscal 2026 due to higher average investment balances of $10.4 billion as compared to $9.2 billion in fiscal 2025, coupled with an increase in average interest rates of 10 basis points, as compared to fiscal 2025.

In fiscal 2026, the Company recognized a net gain of $8.4 million related to investments made through its Corporate Venture Capital arm, ADP Ventures.

See Note 11 of our Consolidated Financial Statements for further details on non-service components of pension income, net.

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Earnings Before Income Taxes ("EBIT") and Adjusted EBIT

For the year ended June 30:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Earnings before income taxes increased in fiscal 2026 due to the increase in total revenues, partially offset by the increase in total expenses discussed above.

EBIT Margin increased in fiscal 2026 due to contributions from client funds interest revenues, increased interest income on corporate funds, lower amortization of client contracts and lists, and lower interest expense related to commercial paper and reverse repurchase borrowings, partially offset by increased selling and marketing expenses and costs related to non-recurring, broad-based, company-wide initiatives.

Adjusted EBIT and Adjusted EBIT margin exclude interest income and interest expense that are not related to our client funds

extended investment strategy, and net charges, including certain legal matters, non-recurring, broad-based, company-wide initiatives, gain on sale of assets, and (gains)/losses on ADP Ventures' investments, in the applicable periods.

Provision for Income Taxes

The effective tax rate in fiscal 2026 and 2025 was 23.0% and 23.2%, respectively. The decrease in the effective tax rate is primarily due to a decrease in uncertain tax positions and an increase in tax credits, partially offset by a lower benefit for adjustments to prior year tax liabilities and a lower excess tax benefit on stock-based compensation for fiscal 2026 as compared to fiscal 2025. Refer to Note 12, Income Taxes, within the Notes to the Consolidated Financial Statements for further discussion.

Adjusted Provision for Income Taxes

The adjusted effective tax rate in fiscal 2026 and 2025 was 23.0% and 23.2%, respectively. The drivers of the adjusted effective tax rate are the same as the drivers of the effective tax rate discussed above.

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Net Earnings and Diluted EPS, Unadjusted and Adjusted

For the year ended June 30, respectively:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

In addition to the increase in net earnings, diluted EPS increased in fiscal 2026 as a result of the impact of fewer shares outstanding resulting from share repurchases under our authorized share repurchase program, partially offset by the issuances of shares under our employee benefit plans. The Company repurchased 8.6 million and 4.4 million shares in fiscal 2026 and 2025, respectively.

For fiscal 2026, adjusted net earnings and adjusted diluted EPS reflect the changes in the components described above.

ANALYSIS OF REPORTABLE SEGMENTS

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Earnings before Income Taxes"],["","","Years Ended June 30,","","","","","","% Change"],["","","2026","","2025","","","","","","","","As Reported"],["Employer Services","","$","5,436.8","","","$","5,008.5","","","","","","","","","9","%"],["PEO Services","","936.1","","","950.5","","","","","","","","","(2)","%"],["Other (a)","","(642.6)","","","(648.9)","","","","","","","","","n/m"],["","","$","5,730.3","","","$","5,310.1","","","","","","","","","8","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Margin"],["","","Years Ended June 30,"],["","","2026","","2025","","YoY Growth"],["Employer Services","","36.7","%","","36.1","%","","60 bps"],["PEO Services","","13.1","%","","14.2","%","","(110) bps"]]
[[/GREPCENT_TABLE]]

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(a) Other represents certain corporate overhead charges and expenses that have not been allocated to the reportable segments, including corporate functions, legal settlements, company-wide severance initiatives, non-recurring gains and losses, the elimination of intercompany transactions, and interest income and expense.

n/m - not meaningful

Employer Services

Revenues

Employer Services' revenues increased in fiscal 2026 due to new business started from new business bookings, strong client revenue retention, an increase in pricing, a 1% year-over-year growth impact of foreign currency, an increase in interest earned on funds held for clients of $164.1 million, and an increase in our pays per control when measured on a same-store-sales basis of 1%.

Earnings before Income Taxes

Employer Services' earnings before income taxes increased in fiscal 2026 due to the increase in revenues, including contributions from client funds interest, discussed above, partially offset by increases in expenses, including $188.6 million in selling and marketing expenses and $159.7 million in costs of servicing and implementing our clients on growing revenue.

Margin

Employer Services' margin increased in fiscal 2026 due to contributions from client funds interest revenues, operating efficiencies for costs of servicing and implementing our clients on growing revenue, and lower amortization of client contracts and lists, partially offset by increased selling and marketing expenses and the impact from the WorkForce Software acquisition in October 2024.

PEO Services

Revenues

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

PEO Services' revenues increased in fiscal 2026 due to an increase in zero-margin benefits pass-throughs of $318.3 million, and growth in average worksite employees of 2% coupled with increases in average wages and state unemployment taxes per worksite employee, as compared to fiscal 2025.

Earnings before Income Taxes

PEO Services’ earnings before income taxes decreased in fiscal 2026 due to increases in expenses, including $318.3 million in zero-margin benefits pass-through costs, $52.8 million in selling and marketing expenses, and $37.1 million in operating costs related to worker's compensation coverage and state unemployment insurance, partially offset by the increase in revenues discussed above.

Margin

PEO Services' margin decreased in fiscal 2026 due to increased selling and marketing expenses, zero-margin benefit pass through costs, an increase in the pre-tax loss from ADP Indemnity, and operating costs related to state unemployment insurance, partially offset by increased revenues discussed above.

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ADP Indemnity provides workers’ compensation deductible reimbursement insurance protection for PEO Services’ worksite employees up to $1 million per occurrence. PEO Services has secured a workers’ compensation insurance policy that caps the exposure for each claim at $1 million per occurrence and has also secured aggregate stop loss insurance that caps aggregate losses at a certain level in the year ended June 30, 2012 and prior from an admitted and licensed insurance company of AIG. We utilize historical loss experience and actuarial judgment to determine the estimated claim liability, and changes in estimated ultimate incurred losses are included in the PEO segment. 

Additionally, starting in the year ended June 30, 2013, ADP Indemnity paid premiums to enter into reinsurance arrangements with ACE American Insurance Company, a wholly-owned subsidiary of Chubb Limited (“Chubb”), to cover substantially all losses incurred by the Company up to $1 million per occurrence related to the workers’ compensation deductible reimbursement insurance protection for PEO Services' worksite employees. Each of these reinsurance arrangements limits our overall exposure incurred up to a certain limit. The Company believes the likelihood of ultimate losses exceeding this limit is remote. ADP Indemnity recorded a pre-tax actuarial gain of $2.8 million in fiscal 2026, as compared to a pre-tax actuarial gain of $8.8 million in fiscal 2025, due to less favorable loss development in workers’ compensation reserves. ADP Indemnity paid a premium of $327.8 million in July 2026, to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for fiscal 2027 policy year on terms substantially similar to the fiscal 2026 reinsurance policy.

Non-GAAP Financial Measures

In addition to our GAAP results, we use the adjusted results and other non-GAAP metrics set forth in the table below to evaluate our operating performance in the absence of certain items and for planning and forecasting of future periods:

[[GREPCENT_TABLE]]
[["Adjusted Financial Measures","U.S. GAAP Measures"],["Adjusted EBIT","Net earnings"],["Adjusted provision for income taxes","Provision for income taxes"],["Adjusted net earnings","Net earnings"],["Adjusted diluted earnings per share","Diluted earnings per share"],["Adjusted effective tax rate","Effective tax rate"],["Organic constant currency","Revenues"]]
[[/GREPCENT_TABLE]]

We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations and against prior periods, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because it allows investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance.  The nature of these exclusions is for specific items that are not fundamental to our underlying business operations.  Since these adjusted financial measures and other non-GAAP metrics are not measures of performance calculated in accordance with U.S. GAAP, they should not be considered in isolation from, as a substitute for, or superior to their corresponding U.S. GAAP measures, and they may not be comparable to similarly titled measures at other companies.

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(a) In adjusted EBIT, we include the interest income earned on investments associated with our client funds extended investment strategy and interest expense on borrowings related to our client funds extended investment strategy as we believe these amounts to be fundamental to the underlying operations of our business model. The adjustments in the table above represent the interest income and interest expense that are not related to our client funds extended investment strategy and are labeled as “All other interest expense” and “All other interest income.”

(b) Represents partial reversals of workforce optimization initiatives from fiscal 2025 and 2024. Severance charges/(reversals) have been taken in the past and not included as an adjustment to get to adjusted results. Unlike severance charges/(reversals) in prior periods, these specific reversals relate to broad-based, company-wide initiatives.

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(c) In Q4 2026, we incurred a charge of $91.1 million as part of a corporate-led business alignment program, which is designed to better align our organization and resources with our Strategic Priorities and to streamline the organizational structure. Costs associated with this program included severance costs of $89.1 million and strategic project costs of $2.0 million. Strategic project costs consist primarily of external advisory costs. This charge is excluded from adjusted net earnings to provide a clearer view of ongoing operations and enhance period-over-period comparability. Severance charges have been taken in the past and not included as an adjustment to get to adjusted results. Unlike charges in prior periods, these specific charges relate to a broad-based, company-wide initiative. 

(d) Represents (gains)/losses on investments made through our Corporate Venture Capital arm, ADP Ventures. (Gains)/losses on these investments may result from observable price changes, changes in ownership interest, accrued interest income, and impairment charges. These adjustments may be highly variable, are predominantly non-cash, are outside our control, and are not fundamental to the underlying operations of our business model.

(e) In fiscal 2026, this represents a net charge (establishment of a legal reserve and insurance recovery) from a legal matter settled during the year ended June 30, 2026. Refer to Note 13, Commitments and Contingencies, within the Notes to the Consolidated Financial Statements for further discussion. In fiscal 2025, this represents a reversal of a legal reserve recorded during the year ended June 30, 2023.

(f) The income tax provision was calculated based on the marginal rate in effect during the period of the adjustment.

(g) The adjusted effective tax rate is calculated as our adjusted provision for income taxes divided by the sum of our adjusted net earnings plus our adjusted provision for income taxes.

The following table reconciles our reported growth rates to the non-GAAP measure of organic constant currency, which excludes the impact of acquisitions, the impact of dispositions, and the impact of foreign currency. The impact of acquisitions and dispositions is calculated by excluding the current year revenues of acquisitions until the one-year anniversary of the transaction and by excluding the prior year revenues of divestitures for the one-year period preceding the transaction. The impact of foreign currency is determined by calculating the current year results using foreign exchange rates consistent with the prior year. The PEO segment is not impacted by acquisitions, dispositions or foreign currency.

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Note: Numbers may not foot due to rounding.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2026, cash and cash equivalents were $4.2 billion, which were primarily invested in time deposits and money market funds.

For corporate liquidity, we expect existing cash, cash equivalents, marketable securities, cash flow from operations together with our $11.7 billion of committed credit facilities and our ability to access both long-term and short-term debt financing from the capital markets will be adequate to meet our operating, investing, and financing activities, such as regular quarterly dividends, share repurchases, and capital expenditures for the foreseeable future. Our financial condition remains solid at June 30, 2026 and we have sufficient liquidity.

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For client funds liquidity, we have the ability to borrow through our financing arrangements under our U.S. short-term commercial paper program and our U.S., Canadian and United Kingdom short-term reverse repurchase agreements ($7.5 billion of which is available on a committed basis in the U.S. as of June 30, 2026), together with our $11.7 billion of committed credit facilities and our ability to use corporate liquidity when necessary to meet short-term funding requirements related to client funds obligations. Please see “Quantitative and Qualitative Disclosures about Market Risk” for a further discussion of the risks related to our client funds extended investment strategy. See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including commercial paper.

Operating, Investing and Financing Cash Flows

Our cash flows from operating, investing, and financing activities, as reflected in the Statements of Consolidated Cash Flows are summarized as follows:

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[[/GREPCENT_TABLE]]

Net cash flows provided by operating activities increased due to growth in our business and a net favorable change in the components of operating assets and liabilities primarily due to timing of collections and payments, as compared to fiscal 2025.

Net cash flows used in investing activities changed primarily due to timing of net proceeds and purchases of corporate and client funds marketable securities of $2,696.2 million, offset by a net decrease in acquisitions of businesses, which totaled $1,165.1 million in fiscal 2025, primarily related to the Workforce Software acquisition.

Net cash flows provided by/(used in) financing activities changed primarily due to a net increase in the cash flow from client funds obligations of $21,516.6 million, which is due to the timing of impounds from our clients and payments to our clients' employees and other payees, a net decrease in cash distributed to our clients that was received from the Internal Revenue Service of $576.2 million, partially offset by the repayment of $4,769.5 million related to borrowings outstanding as of June 30, 2025 under the commercial paper program and an increase of $802.8 million in repurchases of common stock.

We purchased approximately 8.6 million shares of our common stock at an average price per share of $242.92 during fiscal 2026, as compared to purchases of 4.4 million shares at an average price per share of $289.11 during fiscal 2025. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase program. The Company considers several factors in determining when to execute share repurchases, including, among other things, actual and potential acquisition activity, cash balances and cash flows, issuances due to employee benefit plan activity, and market conditions.

Capital Resources and Client Fund Obligations

We have $5.0 billion of senior unsecured notes with maturity dates in 2028, 2030, 2032, 2034, and 2036. We may from time to time revisit the long-term debt market to refinance existing debt, finance investments including acquisitions for our growth, and maintain the appropriate capital structure. However, there can be no assurance that volatility in the global capital and credit markets would not impair our ability to access these markets on terms acceptable to us, or at all. See Note 10 of our Consolidated Financial Statements for a description of our senior unsecured notes.

Our U.S. short-term funding requirements related to client funds are sometimes obtained on an unsecured basis through the issuance of commercial paper, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. This commercial paper program provides for the issuance of up to $11.7 billion in aggregate maturity value. Our commercial paper program is rated A-1+ by Standard and Poor’s, Prime-1 (“P-1”) by Moody’s and F1+ by Fitch. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. As of June 30, 2026, the Company had no commercial paper outstanding. As of June 30, 2025, the

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Company had $4.8 billion of commercial paper outstanding, which was repaid in early July 2025. Details of the borrowings under the commercial paper program are as follows:

[[GREPCENT_TABLE]]
[["Years ended June 30,","","","","","2026","","2025"],["Average daily borrowings (in billions)","","","","","$","4.2","","","$","4.1"],["Weighted average interest rates","","","","","4.0","%","","4.8","%"],["Weighted average maturity (approximately in days)","","","","","3 days","","2 days"]]
[[/GREPCENT_TABLE]]

Our U.S., Canadian, and United Kingdom short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements, which are collateralized principally by government and government agency securities, rather than liquidating previously-collected client funds that have already been invested in available-for-sale securities. These agreements generally have terms ranging from overnight to up to ten business days. We have successfully borrowed through the use of reverse repurchase agreements on an as-needed basis to meet short-term funding requirements related to client funds obligations. As of June 30, 2026 and 2025, the Company had $139.3 million and $38.4 million, respectively, of outstanding obligations related to reverse repurchase agreements. The Company has $7.5 billion available on a committed basis under the U.S. reverse repurchase agreements. Details of the reverse repurchase agreements are as follows:

[[GREPCENT_TABLE]]
[["Years ended June 30,","","","","","2026","","2025"],["Average outstanding balances (in billions)","","","","","$","3.6","","","$","2.9"],["Weighted average interest rates","","","","","4.1","%","","4.8","%"]]
[[/GREPCENT_TABLE]]

We vary the maturities of our committed credit facilities to limit the refinancing risk of any one facility. We have a $5.7 billion, 364-day credit agreement that matures in June 2027 with a one-year term-out option. In addition, we have a five-year $2.5 billion credit facility and a five-year $3.5 billion credit facility maturing in June 2030 and June 2031, respectively, each with an accordion feature under which the aggregate commitment can be increased by $500 million, subject to the availability of additional commitments. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. We had no borrowings through June 30, 2026 under the credit facilities. We believe that we currently meet all conditions set forth in the revolving credit agreements to borrow thereunder, and we are not aware of any conditions that would prevent us from borrowing part or all of the $11.7 billion available to us under the revolving credit agreements. See Note 9 of our Consolidated Financial Statements for a description of our short-term financing including credit facilities.

Our investment portfolio does not contain any asset-backed securities with underlying collateral of sub-prime mortgages, alternative-A mortgages, sub-prime auto loans or sub-prime home equity loans, collateralized debt obligations, collateralized loan obligations, credit default swaps, derivatives, auction rate securities, structured investment vehicles or non-investment grade fixed-income securities. We own AAA-rated senior tranches of primarily fixed rate auto loan, credit card, and device payment plan agreement receivables, secured predominantly by prime collateral. All collateral on asset-backed securities is performing as expected through June 30, 2026. In addition, we own U.S. government securities which primarily include debt directly issued by Federal Farm Credit Banks and Federal Home Loan Banks. Our client funds investment strategy is structured to allow us to average our way through an interest rate cycle by laddering the maturities of our investments out to five years (in the case of the extended portfolio) and out to ten years (in the case of the long portfolio). This investment strategy is supported by our short-term financing arrangements necessary to satisfy short-term funding requirements relating to client funds obligations. See Note 5 of our Consolidated Financial Statements for a description of our corporate investments and funds held for clients.

Capital expenditures in fiscal 2026 were $195.7 million, as compared to $176.8 million in fiscal 2025. We expect capital expenditures in fiscal 2027 to be between $200.0 million and $225.0 million.

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Contractual Obligations

Our contractual obligations as of June 30, 2026 relate primarily to operating leases (Note 7 of our Consolidated Financial Statements) and other arrangements recorded in our balance sheet or disclosed in the notes to our financial statements, including benefit plan obligations (Note 11 of our Consolidated Financial Statements), liabilities for uncertain tax positions (Note 12 of our Consolidated Financial Statements), purchase obligations (Note 13 of our Consolidated Financial Statements), debt obligations (Note 10 of our Consolidated Financial Statements) and $1,333.0 million of interest payments on our debt, of which $171.5 million is expected to be paid within one year.

In addition to the obligations described above, we had obligations for the remittance of funds relating to our payroll and payroll tax filing services. As of June 30, 2026, the obligations relating to these matters, which are expected to be paid in fiscal 2027, total $44,415.5 million, and were recorded in client funds obligations on our Consolidated Balance Sheets. We had $43,957.8 million of cash and cash equivalents and marketable securities to satisfy such obligations recorded in funds held for clients on our Consolidated Balance Sheets as of June 30, 2026.

Separately, ADP Indemnity paid a premium of $327.8 million in July 2026 to enter into a reinsurance agreement with Chubb to cover substantially all losses incurred by ADP Indemnity for the fiscal 2027 policy year. As of June 30, 2026, ADP Indemnity had total assets of $824.4 million to satisfy the actuarially estimated unpaid losses of $774.3 million for the policy years since July 1, 2003. ADP Indemnity paid claims of $8.3 million and $6.3 million, net of insurance recoveries, in fiscal 2026 and 2025, respectively. Refer to the “Analysis of Reportable Segments - PEO Services” above for additional information regarding ADP Indemnity.

In the normal course of business, we also enter into contracts in which we make representations and warranties that relate to the performance of our services and products. We do not expect any material losses related to such representations and warranties.