STOCK-BASED COMPENSATION

The activity related to the Company’s incentive equity awards for the three months ended December 31, 2014 consisted of the following:



	Stock Options				Time-based Restricted Stock Units				Performance-based Restricted Stock Units
	Number of Options (d)		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value
Balances at October 1, 2014	9,056,780		$	24.21	1,869,426		$	25.87	694,527		$	26.53
Granted	110,370		45.09		666,209		38.97		177,546		38.35
Exercise of stock options (a)	(706,764	)	20.15		—		—		—		—
Vesting of restricted stock units (b)	—		—		(9,044	)	25.59		—		—
Expired/forfeited	(50,228	)	24.09		(19,922	)	28.83		(4,059	)	36.40
Balances at December 31, 2014 (c)	8,410,158		$	24.83	2,506,669		$	29.33	868,014		$	28.90

____________


(a)	Stock options exercised during the period of October 1, 2014 through December 31, 2014 had an aggregate intrinsic value of $17.6 million.


(b)	Time-based and performance-based restricted stock units that vested during the period of October 1, 2014 through December 31, 2014 had a fair value of $0.2 million.

(c)

As of December 31, 2014, the Company's outstanding "in the money" stock options using the December 31, 2014 closing stock price of $46.18 (approximately 5.3 million shares) had an aggregate intrinsic value of $130.3 million. As of December 31, 2014, time-based restricted stock units and performance-based restricted stock units expected to vest using the December 31, 2014 share price of $46.18 (approximately 2.3 million and 0.8 million shares, respectively) had an aggregate intrinsic value of $106.1 million and $39.0 million, respectively.


(d)	Stock options outstanding as of December 31, 2014 have a weighted-average remaining contractual life of 5.8 years and 5.3 million stock options are exercisable.

The activity related to the Company’s incentive equity awards for the six months ended December 31, 2014 consisted of the following:



	Stock Options				Time-based Restricted Stock Units				Performance-based Restricted Stock Units
	Number of Options		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Grant Date Fair Value		Number of Shares		Weighted- Average Grant Date Fair Value
Balances at July 1, 2014	9,847,291		$	23.73	1,866,408		$	25.69	662,282		$	26.30
Granted	136,630		44.24		694,429		38.94		215,840		36.91
Exercise of stock options (a)	(1,517,837	)	19.49		—		—		—		—
Vesting of restricted stock units (b)	—		—		(10,024	)	25.55		(5,210	)	23.30
Expired/forfeited	(55,926	)	23.43		(44,144	)	27.66		(4,898	)	34.84
Balances at December 31, 2014	8,410,158		$	24.83	2,506,669		$	29.33	868,014		$	28.90

_____________


(a)	Stock options exercised during the period of July 1, 2014 through December 31, 2014 had an aggregate intrinsic value of $36.0 million.


(b)	Time-based and performance-based restricted stock units that vested during the period of July 1, 2014 through December 31, 2014 had a fair value of $0.4 million.

The Company has stock-based compensation plans under which the Company annually grants stock option and restricted stock unit awards. Exercise prices on options granted have been and continue to be set equal to the market price of the underlying shares on the date of the grant (except special stock option grants which were granted in fiscal years 2008, 2009, and 2010 to certain executive officers who were with the brokerage division of Automatic Data Processing, Inc. at the time of the spin-off, some of which have a premium exercise price), with the measurement of stock-based compensation expense recognized in Net earnings based on the fair value of the award on the date of grant. Stock-based compensation expense of $11.2 million and $9.9 million, as well as related tax benefits of $4.2 million and $3.7 million was recognized for the three months ended December 31, 2014 and 2013, respectively. Stock-based compensation expense of $19.6 million and $14.7 million, as well as related tax benefits of $7.4 million and $5.5 million was recognized for the six months ended December 31, 2014 and 2013, respectively.

As of December 31, 2014, the total remaining unrecognized compensation cost related to non-vested stock options and restricted stock unit awards amounted to $10.3 million and $44.0 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 2.9 years and 1.7 years, respectively.

For stock options issued, 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.