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Employee Benefit Plans

3 Months Ended

Sep. 30, 2019

The components of net pension expense were as follows:



	Three Months Ended
	September 30,
	2019			2018
Service cost – benefits earned during the period	$	14.9		$	14.9
Interest cost on projected benefits	15.4			19.7
Expected return on plan assets	(29.5		)	(32.9		)
Net amortization and deferral	1.6			0.1
Settlement charges and special termination benefits	(5.1		)	15.3
Net pension expense	$	(2.7	)	$	17.1

In fiscal 2018, the Company offered a voluntary early retirement program (“VERP”) to certain eligible U.S.-based associates aged 55 or above with at least 10 years of service. During the three months ended September 30, 2018, the Company recorded $15.3 million of non-cash settlement charges and special termination benefits.

Stock-Based Compensation Plans

Stock-based Compensation Plans. 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 generally vest ratably over 4 years and have a term of 10 years. Compensation expense is measured based on the fair value of the stock option on the grant date and recognized on a straight-line basis over the vesting period. Stock options are forfeited if the employee ceases to be employed by the Company prior to vesting.


•	Restricted Stock.

•

Time-Based Restricted Stock and Time-Based Restricted Stock Units. Time-based restricted stock and time-based restricted stock units granted September 1, 2018 and after generally vest ratably over 3 years. Time-based restricted stock and time-based restricted stock units granted prior to September 1, 2018 are generally subject to a vesting period of 2 years. Awards are forfeited if the employee ceases to be employed by the Company prior to vesting.

Time-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock is measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period. Dividends are paid on shares awarded under the time-based restricted stock program.

Time-based restricted stock units are settled in cash and cannot be transferred during the vesting period. Compensation expense relating to the issuance of time-based restricted stock units is recorded over the vesting period and is initially based on the fair value of the award on the grant date and is subsequently remeasured at each reporting date during the vesting period based on the change in the ADP stock price. No dividend equivalents are paid on units awarded under the time-based restricted stock unit program.

•

Performance-Based Restricted Stock and Performance-Based Restricted Stock Units. Performance-based restricted stock and performance-based restricted stock units generally vest over a one to three year performance period and a subsequent service period of up to 38 months. Under these programs, the Company communicates “target awards” at the beginning of the performance period with possible payouts at the end of

the performance period ranging from 0% to 150% of the “target awards.” Awards are generally forfeited if the employee ceases to be employed by the Company prior to vesting.

Performance-based restricted stock cannot be transferred during the vesting period. Compensation expense relating to the issuance of performance-based restricted stock is recognized over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of shares awarded during the performance period based on probable and actual performance against targets. After the performance period, if the performance targets are achieved, employees are eligible to receive dividends during the remaining vesting period on shares awarded under the performance-based restricted stock program.

Performance-based restricted stock units cannot be transferred and are settled in either cash or stock, depending on the employee's home country. Compensation expense relating to the issuance of performance-based restricted stock units settled in cash is recognized over the vesting period initially based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded during the performance period based on probable and actual performance against targets. In addition, compensation expense is remeasured at each reporting period during the vesting period based on the change in the ADP stock price. Compensation expense relating to the issuance of performance-based restricted stock units settled in stock is recorded over the vesting period based on the fair value of the award on the grant date with subsequent adjustments to the number of units awarded based on the probable and actual performance against targets. Dividend equivalents are paid on awards under the performance-based restricted stock unit program.


•	Employee Stock Purchase Plan. The Company offers an employee stock purchase plan that allows eligible employees to purchase shares of common stock at a price equal to 95% of the market value for the Company's common stock on the last day of the offering period. This plan has been deemed non-compensatory and, therefore, no compensation expense has been recorded.

The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under the Company's employee stock purchase plan, and restricted stock awards. From time to time, the Company may repurchase shares of its common stock under its authorized share repurchase programs. The Company repurchased 1.9 million and 1.6 million shares in the three months ended September 30, 2019 and 2018, respectively. 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.

The following table represents pre-tax stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively:



	Three Months Ended
	September 30,
	2019		2018
Operating expenses	$	4.0	$	5.4
Selling, general and administrative expenses	28.3		28.0
System development and programming costs	4.8		5.0
Total stock-based compensation expense	$	37.1	$	38.4

As of September 30, 2019, the total remaining unrecognized compensation cost related to non-vested stock options, restricted stock units, and restricted stock awards amounted to $32.9 million, $83.9 million, and $142.7 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 2.5 years, 1.8 years, and 2.4 years, respectively.

During the three months ended September 30, 2019, the following activity occurred under the Company's existing plans:

Stock Options:



	Number of Options (in thousands)		Weighted Average Price (in dollars)
Options outstanding at July 1, 2019	3,608		$	103
Options granted	1,015		$	170
Options exercised	(396	)	$	87
Options forfeited/canceled	(46	)	$	123
Options outstanding at September 30, 2019	4,181		$	120

Time-Based Restricted Stock and Time-Based Restricted Stock Units:



	Number of Shares (in thousands)		Number of Units (in thousands)
Restricted shares/units outstanding at July 1, 2019	1,272		290
Restricted shares/units granted	504		97
Restricted shares/units vested	(806	)	(193	)
Restricted shares/units forfeited	(35	)	(8	)
Restricted shares/units outstanding at September 30, 2019	935		186

Performance-Based Restricted Stock and Performance-Based Restricted Stock Units:



	Number of Shares (in thousands)		Number of Units (in thousands)
Restricted shares/units outstanding at July 1, 2019	250		867
Restricted shares/units granted	112		369
Restricted shares/units vested	(171	)	(361	)
Restricted shares/units forfeited	(3	)	(14	)
Restricted shares/units outstanding at September 30, 2019	188		861

The fair value for stock options granted was estimated at the date of grant using the following assumptions:



	Three Months Ended
	September 30,
	2019			2018
Risk-free interest rate	1.4		%	2.7		%
Dividend yield	1.9		%	1.9		%
Weighted average volatility factor	19.3		%	20.9		%
Weighted average expected life (in years)	5.4			5.4
Weighted average fair value (in dollars)	$	24.40		$	26.60