Edgar Filing: AUTOMATIC DATA PROCESSING INC

december2011q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 1-5397

______________

AUTOMATIC DATA PROCESSING, INC.

(Exact name of registrant as specified in its charter)

______________

Delaware	22-1467904
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

One ADP Boulevard, Roseland, New Jersey	07068
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (973) 974-5000

______________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).	Yes o No x
The number of shares outstanding of the registrant’s common stock as of January 31, 2012 was 490,575,881.

Table of Contents

		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Statements of Consolidated Earnings Three and six months ended December 31, 2011 and 2010		3

	Consolidated Balance Sheets At December 31, 2011 and June 30, 2011		4

	Statements of Consolidated Cash Flows Six months ended December 31, 2011 and 2010		5

	Notes to the Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43

Item 4.	Controls and Procedures		43

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		43

Item 1A.	Risk Factors		43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44

Item 6.	Exhibits		45

	Signatures		45

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Earnings

(In millions, except per share amounts)

(Unaudited)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2011			2010			2011			2010
REVENUES:
Revenues, other than interest on funds
held for clients and PEO revenues	$	2,054.0		$	1,921.0		$	4,056.7		$	3,684.8
Interest on funds held for clients		117.9			129.0			239.8			255.8
PEO revenues (A)		411.1			355.7			809.0			694.6
TOTAL REVENUES		2,583.0			2,405.7			5,105.5			4,635.2

EXPENSES:
Costs of revenues:
Operating expenses		1,307.7			1,173.6			2,600.3			2,290.3
Systems development and programming costs		149.1			142.1			298.8			277.0
Depreciation and amortization		63.1			64.6			126.9			124.9
TOTAL COSTS OF REVENUES		1,519.9			1,380.3			3,026.0			2,692.2

Selling, general and administrative expenses		577.5			570.1			1,166.7			1,085.7
Interest expense		2.1			2.8			4.2			5.6
TOTAL EXPENSES		2,099.5			1,953.2			4,196.9			3,783.5

Other income, net		(96.2	)		(32.1	)		(130.4	)		(69.3	)

EARNINGS BEFORE INCOME TAXES		579.7			484.6			1,039.0			921.0

Provision for income taxes		204.7			174.5			361.3			332.4

NET EARNINGS	$	375.0		$	310.1		$	677.7		$	588.6


BASIC EARNINGS PER SHARE	$	0.77		$	0.63		$	1.39		$	1.20

DILUTED EARNINGS PER SHARE	$	0.76		$	0.62		$	1.38		$	1.19

Basic weighted average shares outstanding		486.7			492.0			487.3			491.7
Diluted weighted average shares outstanding		492.4			496.9			492.8			495.9

Dividends declared per common share	$	0.3950		$	0.3600		$	0.7550		$	0.7000

(A) Professional Employer Organization (“PEO”) revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes, of $4,810.4 and $4,231.3 for the three months ended December 31, 2011 and 2010, respectively, and $8,745.7 and $7,582.7 for the six months ended December 31, 2011 and 2010, respectively.

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Consolidated Balance Sheets

(In millions, except per share amounts)

(Unaudited)

	December 31,			June 30,
Assets	2011			2011
Current assets:
Cash and cash equivalents	$	1,331.3		$	1,389.4
Short-term marketable securities		23.9			36.3
Accounts receivable, net		1,353.9			1,364.8
Other current assets		659.4			648.3
Assets held for sale		9.1			9.1
Total current assets before funds held for clients		3,377.6			3,447.9
Funds held for clients		23,349.5			25,135.6
Total current assets		26,727.1			28,583.5
Long-term marketable securities		98.7			98.0
Long-term receivables, net		125.2			128.7
Property, plant and equipment, net		707.9			716.2
Other assets		964.0			922.6
Goodwill		3,130.0			3,073.6
Intangible assets, net		731.5			715.7
Total assets	$	32,484.4		$	34,238.3

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	137.3		$	153.3
Accrued expenses and other current liabilities		963.0			930.4
Accrued payroll and payroll-related expenses		447.4			558.3
Dividends payable		189.2			174.2
Short-term deferred revenues		325.3			350.9
Income taxes payable		45.1			28.6
Total current liabilities before client funds obligations		2,107.3			2,195.7
Client funds obligations		22,690.2			24,591.1
Total current liabilities		24,797.5			26,786.8
Long-term debt		25.5			34.2
Other liabilities		605.3			556.2
Deferred income taxes		409.3			373.5
Long-term deferred revenues		464.4			477.2
Total liabilities		26,302.0			28,227.9

Stockholders' equity:
Preferred stock, $1.00 par value:
Authorized, 0.3 shares; issued, none		-			-
Common stock, $0.10 par value:
Authorized, 1,000.0 shares; issued 638.7
shares at December 31, 2011 and June 30, 2011;
outstanding, 489.1 and 490.8 shares at December 31, 2011
and June 30, 2011, respectively		63.9			63.9
Capital in excess of par value		479.2			489.5
Retained earnings		12,112.6			11,803.9
Treasury stock - at cost: 149.6 and 147.9 shares
at December 31, 2011 and June 30, 2011, respectively		(6,812.8	)		(6,714.0	)
Accumulated other comprehensive income		339.5			367.1
Total stockholders’ equity		6,182.4			6,010.4
Total liabilities and stockholders’ equity	$	32,484.4		$	34,238.3

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Statements of Consolidated Cash Flows

(In millions)

(Unaudited)

	Six Months Ended
	December 31,
	2011			2010
Cash Flows from Operating Activities:
Net earnings	$	677.7		$	588.6
Adjustments to reconcile net earnings to cash flows provided by
operating activities:
Depreciation and amortization		158.9			158.2
Deferred income taxes		7.2			17.2
Stock-based compensation expense		45.7			36.7
Net pension expense		18.3			20.2
Net realized gain from the sales of marketable securities		(12.2	)		(15.4	)
Net amortization of premiums and accretion of discounts on available-for-sale securities		27.2			27.1
Impairment losses on available-for-sale securities		5.8			-
Impairment losses on assets held for sale		-			8.6
Gain on sale of assets		(66.0	)		-
Gains on sales of buildings		-			(1.8	)
Other		1.2			33.6
Changes in operating assets and liabilities, net of effects from acquisitions
and divestitures of businesses:
Decrease in accounts receivable		2.4			73.3
Increase in other assets		(123.1	)		(79.4	)
Decrease in accounts payable		(16.2	)		(58.7	)
Increase/(decrease) in accrued expenses and other liabilities		21.0			(160.9	)
Net cash flows provided by operating activities		747.9			647.3

Cash Flows from Investing Activities:
Purchases of corporate and client funds marketable securities		(2,233.1	)		(2,567.7	)
Proceeds from the sales and maturities of corporate and client funds marketable securities		2,031.7			1,559.4
Net decrease/(increase) in restricted cash and cash equivalents held to satisfy client funds obligations		1,997.6			(4,444.5	)
Capital expenditures		(66.6	)		(80.7	)
Additions to intangibles		(51.4	)		(35.8	)
Acquisitions of businesses, net of cash acquired		(176.3	)		(588.8	)
Proceeds from the sale of property, plant and equipment and other assets		66.0			13.1
Other		0.2			6.9
Net cash flows provided by (used in) investing activities		1,568.1			(6,138.1	)

Cash Flows from Financing Activities:
Net (decrease)/increase in client funds obligations		(1,805.2	)		5,444.1
Payments of debt		(1.0	)		(4.7	)
Repurchases of common stock		(297.9	)		(102.1	)
Proceeds from stock purchase plan and exercises of stock options		118.2			128.6
Dividends paid		(353.9	)		(335.6	)
Net cash flows (used in) provided by financing activities		(2,339.8	)		5,130.3

Effect of exchange rate changes on cash and cash equivalents		(34.3	)		22.9

Net change in cash and cash equivalents		(58.1	)		(337.6	)

Cash and cash equivalents, beginning of period		1,389.4			1,643.3

Cash and cash equivalents, end of period	$	1,331.3		$	1,305.7

See notes to the consolidated financial statements.

Automatic Data Processing, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Tabular dollars in millions, except per share amounts)

(Unaudited)

Note 1. Basis of Presentation

The accompanying Consolidated Financial Statements and footnotes thereto of Automatic Data Processing, Inc. and subsidiaries (“ADP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Consolidated Financial Statements and footnotes thereto are unaudited. In the opinion of the Company’s management, the Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair statement of the Company’s results for the interim periods.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue, costs, expenses and accumulated other comprehensive income that are reported in the Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates.

Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2011 (“fiscal 2011”).

Note 2. New Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale is based, in part, on whether the entity maintains effective control over the financial asset. ASU 2011-03 removes from the assessment of effective control: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee, and the related requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The adoption of ASU 2011-03 will not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 requires expansion of the disclosures required for “level 3” measurements and provides updates to the existing measurement guidance. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of ASU 2011-04 will not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.

In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment”. ASU 2011-08 amends the guidance in ASC 350-20 on testing goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that the fair value of a reporting unit is less than its carrying value based upon the qualitative assessment, it is necessary to perform the currently prescribed two-step goodwill impairment test. ASU 2011-08 does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The adoption of ASU 2011-08 will not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.

Note 3. Earnings per Share (“EPS”)

			Effect of		Effect of
			Employee		Employee
			Stock		Restricted
			Option		Stock
	Basic		Shares		Shares		Diluted

Three months ended December 31,

2011
Net earnings	$	375.0					$	375.0
Weighted average shares (in millions)		486.7		4.1		1.6		492.4
EPS	$	0.77					$	0.76

2010
Net earnings	$	310.1					$	310.1
Weighted average shares (in millions)		492.0		3.6		1.3		496.9
EPS	$	0.63					$	0.62

Six months ended December 31,

2011
Net earnings	$	677.7					$	677.7
Weighted average shares (in millions)		487.3		4.0		1.5		492.8
EPS	$	1.39					$	1.38

2010
Net earnings	$	588.6					$	588.6
Weighted average shares (in millions)		491.7		2.9		1.3		495.9
EPS	$	1.20					$	1.19

Options to purchase 0.6 million and 3.7 million shares of common stock for the three months ended December 31, 2011 and 2010, respectively, and 8.0 million shares of common stock for the six months ended December 31, 2010, were excluded from the calculation of diluted earnings per share because their exercise prices exceeded the average market price of outstanding common shares for the respective periods.

Note 4. Other Income, net

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2011			2010			2011			2010
Interest income on corporate funds	$	(27.2	)	$	(27.9	)	$	(56.8	)	$	(58.7	)
Realized gains on available-for-sale securities		(14.8	)		(5.4	)		(19.1	)		(17.6	)
Realized losses on available-for-sale securities		6.6			1.8			6.9			2.2
Impairment losses on available-for-sale securities		5.8			-			5.8			-
Impairment losses on assets held for sale		-			-			-			8.6
Gain on sale of assets		(66.0	)		-			(66.0	)		-
Gains on sales of buildings		-			-			-			(1.8	)
Other, net		(0.6	)		(0.6	)		(1.2	)		(2.0	)

Other income, net	$	(96.2	)	$	(32.1	)	$	(130.4	)	$	(69.3	)

Proceeds from sales and maturities of available-for-sale securities were $2,031.7 million and $1,559.4 million for the six months ended December 31, 2011 and 2010, respectively.

During the three months ended December 31, 2011, the Company sold assets related to rights and obligations to resell a third-party expense management platform and, as a result, recorded a gain of $66.0 million in other income, net, on the Statements of Consolidated Earnings for the three and six months ended December 31, 2011.

At December 31, 2011, the Company concluded that it had the intent to sell certain available-for-sale securities with unrealized losses of $5.8 million. As such, the Company recorded an impairment charge of $5.8 million in other income, net, on the Statements of Consolidated Earnings for the three and six months ended December 31, 2011.

During the six months ended December 31, 2010, the Company reclassified assets related to two buildings as assets held for sale on the Consolidated Balance Sheets. Such assets were previously reported in property, plant and equipment, net, on the Consolidated Balance Sheets. As the carrying amount of the assets held for sale exceeded their fair value less costs to sell, the Company recorded impairment losses of $8.6 million in other income, net, on the Statements of Consolidated Earnings for the six months ended December 31, 2010. These two buildings remain in assets held for sale on the Consolidated Balance Sheets at December 31, 2011.

During the six months ended December 31, 2010, the Company sold two buildings that were previously classified as assets held for sale on the Consolidated Balance Sheets and, as a result, recorded a gain of $1.8 million in other income, net, on the Statements of Consolidated Earnings for the six months ended December 31, 2010.

The Company has an outsourcing agreement with Broadridge Financial Solutions, Inc. ("Broadridge") pursuant to which the Company provides data center outsourcing services, which principally consist of information technology services and service delivery network services. As a result of this agreement, the Company recognized income of $29.4 million and $27.4 million for the three months ended

December 31, 2011 and 2010, respectively, which was offset by expenses associated with providing such services of $28.8 million and $26.8 million, respectively, both of which were recorded in other income, net, on the Statements of Consolidated Earnings. The Company recognized income of $57.9 million and $54.7 million for the six months ended December 31, 2011 and 2010, respectively, which was offset by expenses associated with providing such services of $56.8 million and $53.5 million. The Company had receivables on the Consolidated Balance Sheets from Broadridge for the services under this agreement of $9.1 million and $9.5 million at December 31, 2011 and June 30, 2011, respectively. In fiscal 2010, Broadridge notified the Company that it would not extend the outsourcing agreement beyond its current expiration date of June 30, 2012. The Company continues to assess the impact on results of operations, if any, that this will have and does not currently anticipate this will have a material impact.

Note 5. Acquisitions

Assets acquired and liabilities assumed in business combinations were recorded on the Company’s Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Statements of Consolidated Earnings since their respective dates of acquisition. The excess of the purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions and subject to revision when the Company receives final information, including appraisals and other analyses. Accordingly, the measurement period for such purchase price allocations will end when the information or the facts and circumstances becomes available, but will not exceed twelve months.

The Company acquired five businesses during the six months ended December 31, 2011 for approximately $233.0 million, net of cash acquired. In addition to the cash consideration related to acquisitions closed during the six months ended December 31, 2011, the Company accrued certain liabilities which represent the estimated fair value of contingent consideration expected to be payable in the event that certain specific performance metrics are achieved over the next two years of operations. At December 31, 2011, the Company had not yet finalized the purchase price allocation for these five acquisitions. These acquisitions resulted in approximately $156.3 million of goodwill. Intangible assets acquired, which total approximately $69.0 million for these five acquisitions, included customer contracts and lists, software and trademarks that are being amortized over a weighted average life of approximately 12 years. These five acquisitions were not material individually or in the aggregate to the Company’s results of operations, financial position, or cash flows.

The Company acquired six businesses during the six months ended December 31, 2010 for approximately $590.2 million, net of cash acquired. These acquisitions resulted in approximately $400.7 million of goodwill. Intangible assets acquired, which totaled approximately $189.3 million for these six acquisitions, included customer contracts and lists, software and trademarks that are being amortized over a weighted average life of approximately 11 years. The Company finalized the purchase price allocation for these six acquisitions during the six months ended December 31, 2011 and adjusted the preliminary values allocated to certain assets and liabilities in order to reflect final information received.

Note 6. Corporate Investments and Funds Held for Clients

Corporate investments and funds held for clients at December 31, 2011 and June 30, 2011 were as follows:

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Type of issue:
Money market securities and other cash
equivalents	$	7,654.0	$	-	$	-		$	7,654.0
Available-for-sale securities:
U.S. Treasury and direct obligations of
U.S. government agencies		6,539.1		271.6		(0.1	)		6,810.6
Corporate bonds		6,249.0		245.8		(10.9	)		6,483.9
Asset-backed securities		357.9		18.8		-			376.7
Commercial mortgage-backed securities		374.6		13.4		-			388.0
Municipal bonds		494.7		33.4		-			528.1
Canadian government obligations and
Canadian government agency obligations		996.5		31.1		(0.1	)		1,027.5
Other securities		1,452.5		84.1		(2.0	)		1,534.6

Total available-for-sale securities		16,464.3		698.2		(13.1	)		17,149.4

Total corporate investments and funds
held for clients	$	24,118.3	$	698.2	$	(13.1	)	$	24,803.4


	June 30, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Type of issue:
Money market securities and other cash
equivalents	$	9,731.8	$	-	$	-		$	9,731.8
Available-for-sale securities:
U.S. Treasury and direct obligations of
U.S. government agencies		6,558.2		213.0		(12.1	)		6,759.1
Corporate bonds		5,908.6		234.9		(16.9	)		6,126.6
Asset-backed securities		422.4		25.4		-			447.8
Commercial mortgage backed securities		476.6		15.9		-			492.5
Municipal bonds		493.7		23.1		(0.6	)		516.2
Canadian government obligations and
Canadian government agency obligations		1,082.0		20.8		(1.3	)		1,101.5
Other securities		1,415.1		72.4		(3.7	)		1,483.8

Total available-for-sale securities		16,356.6		605.5		(34.6	)		16,927.5

Total corporate investments and funds
held for clients	$	26,088.4	$	605.5	$	(34.6	)	$	26,659.3

At December 31, 2011, U.S. Treasury and direct obligations of U.S. government agencies primarily include debt directly issued by Federal Home Loan Banks, Federal Farm Credit Banks, Federal Home Loan Mortgage Corporation ("Freddie Mac"), and Federal National Mortgage Association ("Fannie Mae") with fair values of $3,998.7 million, $1,010.2 million, $643.3 million, and $639.0 million, respectively. At

June 30, 2011, U.S. Treasury and direct obligations of U. S. government agencies primarily include debt directly issued by Federal Home Loan Banks, Federal Farm Credit Banks, Freddie Mac, and Fannie Mae with fair values of $3,886.5 million, $914.0 million, $759.1million and $702.4 million, respectively. U.S. Treasury and direct obligations of U.S. government agencies represent senior, unsecured, non-callable debt that primarily carries a credit rating of AAA, as rated by Moody's and AA+, as rated by Standard & Poor's and has maturities ranging from January 2012 through December 2021.

At December 31, 2011, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, rate reduction and auto loan receivables with fair values of $210.2 million, $153.1 million and $13.1 million, respectively. At June 30, 2011, asset-backed securities include AAA rated senior tranches of securities with predominately prime collateral of fixed rate credit card, rate reduction and auto loan receivables with fair values of $220.5 million, $196.9 million and $30.0 million, respectively. These securities are collateralized by the cash flows of the underlying pools of receivables. The primary risk associated with these securities is the collection risk of the underlying receivables. All collateral on such asset-backed securities has performed as expected through December 31, 2011.

At December 31, 2011, other securities and their fair value primarily represent Canadian provincial bonds of $554.9 million, supranational bonds of $404.1 million, sovereign bonds of $346.0 million, mortgage-backed securities of $143.5 million that are guaranteed by Fannie Mae and Freddie Mac and corporate bonds backed by the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program of $62.5 million. At June 30, 2011, other securities and their fair value primarily represent Canadian provincial bonds of $494.3 million, supranational bonds of $360.1 million, sovereign bonds of $328.8 million, mortgage-backed securities of $146.5 million that are guaranteed by Fannie Mae and Freddie Mac and corporate bonds backed by the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program of $129.1 million. The Company's mortgage-backed securities represent an undivided beneficial ownership interest in a group or pool of one or more residential mortgages. These securities are collateralized by the cash flows of 15-year and 30-year residential mortgages and are guaranteed by Fannie Mae and Freddie Mac as to the timely payment of principal and interest.

Classification of corporate investments on the Consolidated Balance Sheets is as follows:

	December 31,		June 30,
	2011		2011

Corporate investments:
Cash and cash equivalents	$	1,331.3	$	1,389.4
Short-term marketable securities		23.9		36.3
Long-term marketable securities		98.7		98.0
Total corporate investments	$	1,453.9	$	1,523.7

Funds held for clients represent assets that, based upon the Company's intent, are restricted for use solely for the purposes of satisfying the obligations to remit funds relating to the Company’s payroll and payroll tax filing services, which are classified as client funds obligations on our Consolidated Balance Sheets.

Funds held for clients have been invested in the following categories:

	December 31,		June 30,
	2011		2011

Funds held for clients:
Restricted cash and cash equivalents held
to satisfy client funds obligations	$	6,322.7	$	8,342.4
Restricted short-term marketable securities held
to satisfy client funds obligations		2,899.5		3,059.9
Restricted long-term marketable securities held
to satisfy client funds obligations		14,127.3		13,733.3
Total funds held for clients	$	23,349.5	$	25,135.6

Client funds obligations represent the Company's contractual obligations to remit funds to satisfy clients' payroll and tax payment obligations and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. The Company has reported client funds obligations as a current liability on the Consolidated Balance Sheets totaling $22,690.2 million and $24,591.1 million as of December 31, 2011 and June 30, 2011, respectively. The Company has classified funds held for clients as a current asset since these funds are held solely for the purposes of satisfying the client funds obligations. The Company has reported the cash flows related to the purchases of corporate and client funds marketable securities and related to the proceeds from the sales and maturities of corporate and client funds marketable securities on a gross basis in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash inflows and outflows related to client funds investments with original maturities of 90 days or less on a net basis within net increase in restricted cash and cash equivalents and other restricted assets held to satisfy client funds obligations in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash flows related to the cash received from and paid on behalf of clients on a net basis within net increase in client funds obligations in the financing section of the Statements of Consolidated Cash Flows.

Approximately 87% of the available-for-sale securities held a AAA or AA rating at December 31, 2011, as rated by Moody's, Standard & Poor's and, for Canadian securities, Dominion Bond Rating Service. All available-for-sale securities for which the Company does not have the intent to sell at December 31, 2011 were rated as investment grade.

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2011, are as follows:

	Unrealized					Unrealized
	losses			Fair market		losses			Fair market		Total gross
	less than			value less than		greater than			value greater		unrealized			Total fair
	12 months			12 months		12 months			than 12 months		losses			market value

U.S. Treasury and direct obligations of
U.S. government agencies	$	(0.1	)	$	108.7	$	-		$	-	$	(0.1	)	$	108.7
Corporate bonds		(7.0	)		600.5		(3.9	)		93.3		(10.9	)		693.8
Asset-backed securities		-			4.8		-			-		-			4.8
Commercial mortgage-backed securities		-			18.8		-			-		-			18.8
Municipal bonds		-			-		-			-		-			-
Canadian government obligations and															-
Canadian government agency obligations		(0.1	)		13.6		-			-		(0.1	)		13.6
Other securities		(2.0	)		142.0		-			-		(2.0	)		142.0

	$	(9.2	)	$	888.4	$	(3.9	)	$	93.3	$	(13.1	)	$	981.7

The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of June 30, 2011 are as follows:

	Unrealized					Unrealized
	losses			Fair market		losses		Fair market		Total gross
	less than			value less than		greater than		value greater		unrealized			Total fair
	12 months			12 months		12 months		than 12 months		losses			market value

U.S. Treasury and direct obligations of
U.S. government agencies	$	(12.1	)	$	1,049.0	$	-	$	-	$	(12.1	)	$	1,049.0
Corporate bonds		(16.9	)		945.2		-		-		(16.9	)		945.2
Asset-backed securities		-			0.5		-		-		-			0.5
Commercial mortgage-backed securities		-			17.3		-		-		-			17.3
Municipal bonds		(0.6	)		35.0		-		-		(0.6	)		35.0
Canadian government obligations and
Canadian government agency obligations		(1.3	)		227.7		-		-		(1.3	)		227.7
Other securities		(3.7	)		242.3		-		-		(3.7	)		242.3

	$	(34.6	)	$	2,517.0	$	-	$	-	$	(34.6	)	$	2,517.0

Expected maturities of available-for-sale securities at December 31, 2011 are as follows:

Due in one year or less	$	2,923.4
Due after one year to two years		2,301.2
Due after two years to three years		2,164.9
Due after three years to four years		4,214.0
Due after four years		5,545.9

Total available-for-sale securities	$	17,149.4

At December 31, 2011, the Company concluded that it had the intent to sell certain available-for-sale securities for which unrealized losses of $5.8 million were previously recorded in accumulated other comprehensive income on the Consolidated Balance Sheets. As such, the Company recognized impairment losses of $5.8 million in other income, net, on the Statements of Consolidated Earnings for the three months ended December 31, 2011. Subsequent to December 31, 2011, the Company sold

approximately half of its remaining holdings in these securities. For the remaining securities in an unrealized loss position of $13.1 million at December 31, 2011, the Company concluded that it did not have the intent to sell such securities and it was not more likely than not that the Company would be required to sell such securities before recovery. The securities with unrealized losses at December 31, 2011 were primarily comprised of corporate bonds. In order to determine whether such losses were due to credit losses, the Company evaluated such securities utilizing a variety of quantitative and qualitative factors including whether the Company expects to collect all amounts due under the contractual terms of the security, information about current and past events of the issuer, and the length of time and the extent to which the fair value has been less than the cost basis. At December 31, 2011, the Company concluded that unrealized losses on available-for-sale securities held at December 31, 2011 were not credit losses and were attributable to changes in interest rates. As a result, the Company concluded that the $13.1 million in unrealized losses on such securities should be recorded in accumulated other comprehensive income on the Consolidated Balance Sheets at December 31, 2011.

Note 7. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date and is based upon the Company’s principal or most advantageous market for a specific asset or liability.

U.S. GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

Level 1	Fair value is determined based upon quoted prices for identical assets or liabilities that are traded in active markets.

Level 2	Fair value is determined based upon inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including: · quoted prices for similar assets or liabilities in active markets; · quoted prices for identical or similar assets or liabilities in markets that are not active; · inputs other than quoted prices that are observable for the asset or liability; or · inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3	Fair value is determined based upon inputs that are unobservable and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based upon the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

Available-for-sale securities included in Level 1 are valued using closing prices for identical instruments that are traded on active exchanges. Available-for-sale securities included in Level 2 are valued utilizing inputs obtained from an independent pricing service. To determine the fair value of the Company’s Level 2 investments, a variety of inputs are utilized, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment information. Over 99% of the Company’s Level 2 investments are valued utilizing inputs obtained from a pricing service. The Company reviews the values generated by the independent pricing service for reasonableness by comparing the valuations received from the independent pricing service to valuations from at least one other observable source.

The Company has not adjusted the prices obtained from the independent pricing service. The Company has no available-for-sale securities included in Level 3.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In certain instances, the inputs used to measure fair value may meet the definition of more than one level of the fair value hierarchy. The significant input with the lowest level priority is used to determine the applicable level in the fair value hierarchy.

The following table presents the Company's assets measured at fair value on a recurring basis at December 31, 2011. Included in the table are available-for-sale securities within corporate investments of $122.6 million and funds held for clients of $17,026.8 million.

	Level 1		Level 2		Level 3		Total

U.S Treasury and direct obligations of
U.S. government agencies	$	-	$	6,810.6	$	-	$	6,810.6
Corporate bonds		-		6,483.9		-		6,483.9
Asset-backed securities		-		376.7		-		376.7
Commercial mortgage-backed securities		-		388.0		-		388.0
Municipal bonds		-		528.1		-		528.1
Canadian government obligations and
Canadian government agency obligations		-		1,027.5		-		1,027.5
Other securities		18.8		1,515.8		-		1,534.6
Total available-for-sale securities	$	18.8	$	17,130.6	$	-	$	17,149.4

The following table presents the Company’s assets measured at fair value on a recurring basis at June 30, 2011. Included in the table are available-for-sale securities within corporate investments of $134.3 million and funds held for clients of $16,793.2 million.

	Level 1		Level 2		Level 3		Total

U.S Treasury and direct obligations of
U.S. government agencies	$	-	$	6,759.1	$	-	$	6,759.1
Corporate bonds		-		6,126.6		-		6,126.6
Asset-backed securities		-		447.8		-		447.8
Commercial mortgage-backed securities		-		492.5		-		492.5
Municipal bonds		-		516.2		-		516.2
Canadian government obligations and
Canadian government agency obligations		-		1,101.5		-		1,101.5
Other securities		20.1		1,463.7		-		1,483.8
Total available-for-sale securities	$	20.1	$	16,907.4	$	-	$	16,927.5

Note 8. Receivables

Accounts receivable, net, includes the Company’s trade receivables, which are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts. The Company’s receivables also include notes receivable for the financing of the sale of computer systems, primarily from auto, truck, motorcycle, marine, recreational vehicle and heavy equipment dealers. Notes receivable are recorded based upon the amount the Company expects to receive from its clients, net of an allowance for doubtful accounts and unearned income. The allowance for doubtful accounts is the Company's best estimate of probable credit losses related to trade receivables and notes receivable based upon the aging of the receivables, historical collection data, internal assessments of credit quality

and the economic conditions in the automobile industry, as well as in the economy as a whole. The Company charges off uncollectable amounts against the reserve in the period in which it determines they are uncollectable. Unearned income on notes receivable is amortized using the effective interest method.

The Company’s receivables, whose carrying value approximates fair value, are as follows:

	December 31, 2011						June 30, 2011
	Current			Long-term			Current			Long-term

Trade receivables	$	1,323.5		$	-		$	1,333.2		$	-
Notes receivable		88.1			141.1			90.5			146.4
Less:
Allowance for doubtful accounts - trade receivables		(44.7	)		-			(44.8	)		-
Allowance for doubtful accounts - notes receivable		(5.6	)		(9.0	)		(5.7	)		(9.4	)
Unearned income - notes receivable		(7.4	)		(6.9	)		(8.4	)		(8.3	)

Total	$	1,353.9		$	125.2		$	1,364.8		$	128.7

The Company determines the allowance for doubtful accounts related to notes receivable based upon a specific reserve for known collection issues, as well as a non-specific reserve based upon aging, both of which are based upon history of such losses and current economic conditions. Based upon the Company’s methodology, the notes receivable balances with specific and non-specific reserves and the specific and non-specific reserves associated with those balances are as follows:

	December 31, 2011
	Notes Receivable				Reserve
	Current		Long-term		Current		Long-term
Specific Reserve	$	0.4	$	0.7	$	0.4	$	0.7
Non-specific Reserve		87.7		140.4		5.2		8.3
Total	$	88.1	$	141.1	$	5.6	$	9.0

	June 30, 2011
	Notes Receivable				Reserve
	Current		Long-term		Current		Long-term
Specific Reserve	$	0.6	$	0.9	$	0.6	$	0.9
Non-specific Reserve		89.9		145.5		5.1		8.5
Total	$	90.5	$	146.4	$	5.7	$	9.4

The rollforward of the allowance for doubtful accounts related to notes receivable is as follows:

	Current			Long-term
Balance at June 30, 2011	$	5.7		$	9.4
Incremental provision		0.7			0.9
Recoveries		(0.4	)		(0.8	)
Chargeoffs		(0.4	)		(0.5	)

Balance at December 31, 2011	$	5.6		$	9.0

The allowance for doubtful accounts as a percentage of notes receivable was approximately 6% as of December 31, 2011 and approximately 6% as of June 30, 2011.

Notes receivable aged over 30 days past due are considered delinquent. Notes receivable aged over 60 days past due and notes receivable with known collection issues are placed on non-accrual status. Interest revenue is not recognized on notes receivable while on non-accrual status. Cash payments received on non-accrual receivables are applied towards principal. When notes receivable on non-

accrual status are again less than 60 days past due, recognition of interest revenue for notes receivable is resumed. At December 31, 2011, the Company had $1.2 million in notes receivable on non-accrual status, including $0.4 million of notes receivable aged over 60 days past due. At December 31, 2010, the Company had $2.9 million in notes receivable on non-accrual status, including $0.8 million of notes receivable aged over 60 days past due. During the six months ended December 31, 2011, the charge-offs as a percentage of notes receivable were 0.4%. During the six months ended December 31, 2010, the charge-offs as a percentage of notes receivable were 1%.

On an ongoing basis, the Company evaluates the credit quality of its financing receivables, utilizing aging of receivables, collection experience and charge-offs. In addition, the Company evaluates economic conditions in the auto industry and specific dealership matters, such as bankruptcy. As events related to a specific client dictate, the credit quality of a client is reevaluated.

The aging of the notes receivable past due at December 31, 2011 is as follows:

		Over 30 days to 60 days				Over 60 days
Notes Receivables		$	1.4			$	0.4

At December 31, 2011, approximately 99% of notes receivable are current.

The aging of the notes receivable past due at June 30, 2011 is as follows:

		Over 30 days to 60 days				Over 60 days
Notes Receivables		$	1.2			$	0.1

At June 30, 2011, approximately 99% of notes receivable are current.

Note 9. Goodwill and Intangible Assets, net

Changes in goodwill for the six months ended December 31, 2011 are as follows:

	Employer			PEO		Dealer
	Services			Services		Services			Total

Balance as of June 30, 2011	$	1,935.0		$	4.8	$	1,133.8		$	3,073.6
Additions and other adjustments, net		55.0			-		68.1			123.1
Currency translation adjustments		(47.4	)		-		(19.3	)		(66.7	)

Balance as of December 31, 2011	$	1,942.6		$	4.8	$	1,182.6		$	3,130.0

Components of intangible assets, net, are as follows:

	December 31,			June 30,
	2011			2011
Intangible assets:
Software and software licenses	$	1,371.3		$	1,322.4
Customer contracts and lists		853.2			821.0
Other intangibles		241.1			238.3
		2,465.6			2,381.7
Less accumulated amortization:
Software and software licenses		(1,103.4	)		(1,062.1	)
Customer contracts and lists		(464.9	)		(443.7	)
Other intangibles		(165.8	)		(160.2	)
		(1,734.1	)		(1,666.0	)
Intangible assets, net	$	731.5		$	715.7

Other intangibles consist primarily of purchased rights, covenants, patents and trademarks (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 8 years (4 years for software and software licenses, 11 years for customer contracts and lists, and 8 years for other intangibles). Amortization of intangible assets was $43.2 million and $45.2 million for the three months ended December 31, 2011 and 2010, respectively, and totaled $86.4 million and $85.4 million for the six months ended December 31, 2011 and 2010, respectively.

Estimated future amortization expenses of the Company's existing intangible assets are as follows:

	Amount
Six months ending June 30, 2012	$	92.3
Twelve months ending June 30, 2013	$	149.2
Twelve months ending June 30, 2014	$	110.5
Twelve months ending June 30, 2015	$	83.1
Twelve months ending June 30, 2016	$	62.7
Twelve months ending June 30, 2017	$	51.4

The Company has not incurred significant costs to renew or extend the term of acquired intangible assets during the six months ended December 31, 2011.

Note 10. Short-term Financing

The Company has a $2.0 billion, 364-day credit agreement with a group of lenders that matures in June 2012. In addition, the Company has a four-year $3.25 billion credit facility maturing in June 2015 that contains an accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. The Company also has an existing $1.5 billion three-year credit facility that matures in June 2013 that also contains an accordion feature under which the aggregate commitment can be increased by $500.0 million, subject to the availability of additional commitments. The interest rate applicable to committed borrowings is tied to LIBOR, the federal funds effective rate or the prime rate depending on the notification provided by the Company to the syndicated financial institutions prior to borrowing. The Company is also required to pay facility fees on the credit agreements. The primary uses of the credit facilities are to provide liquidity to the commercial paper program and funding for general corporate purposes, if necessary. The Company had no borrowings through December 31, 2011 under the credit agreements.

The Company’s U.S. short-term funding requirements related to client funds are sometimes obtained through a short-term commercial paper program, which provides for the issuance of up to $6.75 billion in

aggregate maturity value of commercial paper. The Company’s commercial paper program is rated A-1+ by Standard and Poor’s and Prime-1 by Moody’s. These ratings denote the highest quality commercial paper securities. Maturities of commercial paper can range from overnight to up to 364 days. At December 31, 2011 and June 30, 2011, the Company had no commercial paper outstanding. For the three months ended December 31, 2011 and 2010, the Company’s average borrowings were $3.3 billion and $2.3 billion, respectively, at weighted average interest rates of 0.1% and 0.2%, respectively. For the six months ended December 31, 2011 and 2010, the Company’s average borrowings were $3.2 billion and $2.3 billion, respectively, at weighted average interest rates of 0.1% and 0.2%, respectively. The weighted average maturity of the Company’s commercial paper during each of the three and six months ended December 31, 2011 approximated two days.

The Company’s U.S. and Canadian short-term funding requirements related to client funds obligations are sometimes obtained on a secured basis through the use of reverse repurchase agreements. These agreements are collateralized principally by government and government agency securities. These agreements generally have terms ranging from overnight to up to five business days. The Company has $2.0 billion available to it on a committed basis under these reverse repurchase agreements. At December 31, 2011 and June 30, 2011, there were no outstanding obligations under reverse repurchase agreements. For the three months ended December 31, 2011 and 2010, the Company had average outstanding balances under reverse repurchase agreements of $271.5 million and $541.7 million, respectively, at weighted average interest rates of 0.7% and 0.5%, respectively. For the six months ended December 31, 2011 and 2010, the Company had average outstanding balances under reverse repurchase agreements of $384.2 million and $575.3 million, respectively, at weighted average interest rates of 0.5% and 0.4%, respectively.

Note 11. Debt

Components of long-term debt are as follows:

	December 31,			June 30,
	2011			2011

Industrial revenue bonds	$	21.6		$	21.6
Secured financing		14.4			15.4

		36.0			37.0
Less: current portion		(10.5	)		(2.8	)
	$	25.5		$	34.2

The fair value of the industrial revenue bonds and other debt, included above, approximates carrying value.

Note 12. Employee Benefit Plans

A. Stock Plans. The Company recognizes stock-based compensation expense in net earnings based on the fair value of the award on the date of grant. 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 are issued under a grade vesting schedule. Options granted prior to July 1, 2008 generally vest ratably over five years and have a term of 10 years. Options granted after July 1, 2008 generally vest ratably

over four years and have a term of 10 years. Compensation expense for stock options is recognized over the requisite service period for each separately vesting portion of the stock option award.

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.

·	Restricted Stock.

Time-Based Restricted Stock. The Company has issued time-based restricted stock to certain key employees. These shares are restricted as to transfer and in certain circumstances must be returned to the Company at the original purchase price. The Company records stock compensation expense relating to the issuance of restricted stock based on market prices on the date of grant on a straight-line basis over the period in which the transfer restrictions exist, which is up to five years from the date of grant.

Performance-Based Restricted Stock. The performance-based restricted stock program has a one-year performance period, and a subsequent six-month service period. Under this program, the Company communicates "target awards" to employees at the beginning of the performance period and, as such, dividends are not paid in respect of the "target awards" during the performance period. After the performance period, if the performance targets are achieved, associates are eligible to receive dividends on shares awarded under the program. The performance target is based on earnings per share growth over the performance period, with possible payouts ranging from 0% to 150% of the "target awards." Stock-based compensation expense is measured based upon the fair value of the award on the grant date. Compensation expense is recognized on a straight-line basis over the vesting period of approximately 18 months, based upon the probability that the performance target will be met.

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 0.9 million shares in the three months ended December 31, 2011 as compared to 1.1 million shares repurchased in the three months ended December 31, 2010 and the Company repurchased 6.2 million shares in the six months ended December 31, 2011 as compared to 2.4 million shares repurchased in the six months ended December 31, 2010. 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.

Stock-based compensation expense of $27.2 million and $22.8 million was recognized in earnings for the three months ended December 31, 2011 and 2010, respectively, as well as related tax benefits of $10.0 million and $8.5 million, respectively. Stock-based compensation expense of $45.7 million and $36.7 million was recognized in earnings for the six months ended December 31, 2011 and 2010, respectively, as well as related tax benefits of $16.8 million and $13.7 million, respectively.

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2011		2010		2011		2010

Operating expenses	$	4.5	$	4.6	$	7.5	$	6.6
Selling, general and administrative expenses		19.0		14.1		31.7		23.8
System development and programming costs		3.7		4.1		6.5		6.3
Total pretax stock-based compensation expense	$	27.2	$	22.8	$	45.7	$	36.7

As of December 31, 2011, the total remaining unrecognized compensation cost related to non-vested stock options and restricted stock awards amounted to $5.4 million and $70.3 million, respectively, which will be amortized over the weighted-average remaining requisite service periods of 1.3 years and 1.3 years, respectively.

During the six months ended December 31, 2011, the following activity occurred under the Company’s existing plans:

Stock Options:

	Number			Weighted
	of Options			Average Price
	(in thousands)			(in dollars)

Options outstanding at
July 1, 2011		21,714		$	40
Options granted		212		$	47
Options exercised		(2,538	)	$	52
Options cancelled		(139	)	$	42

Options outstanding at
December 31, 2011		19,249		$	40

Performance-Based Restricted Stock:

	Number
	of Shares
	(in thousands)

Restricted shares outstanding
at July 1, 2011		1,351
Restricted shares granted		1,799
Restricted shares vested		(76	)
Restricted shares forfeited		(47	)

Restricted shares outstanding
at December 31, 2011		3,027

Time-Based Restricted Stock:

	Number
	of Shares
	(in thousands)

Restricted shares outstanding,
at July 1, 2011		493
Restricted shares granted		8
Restricted shares vested		(35	)
Restricted shares forfeited		-

Restricted shares outstanding,
at December 31, 2011		466

The fair value of each stock option issued is 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 grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.

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

	Six Months Ended
	December 31,
	2011			2010
Risk-free interest rate		1.0	%		1.4%-1.6	%
Dividend yield		3.0% - 3.1	%		3.3	%
Weighted average volatility factor		24.9% - 25.7	%		24.9	%
Weighted average expected life (in years)		5.2			5.0
Weighted average fair value (in dollars)	$	7.00		$	6.21

B. Pension Plans

The components of net pension expense were as follows:

	Three months ended				Six months ended
	December 31,				December 31,
	2011		2010		2011	2010
Service cost – benefits earned during the period	$	14.3	$	13.1