ADP 2002 Annual Report Download - page 37

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NOTE 9. FUNDS HELD FOR CLIENTS AND
CLIENT FUNDS OBLIGATIONS
As part of its integrated payroll and payroll tax filing services,
the Company impounds funds for federal, state and local
employment taxes from approximately 354,000 clients;
handles all regulatory payroll tax filings, correspondence,
amendments, and penalty and interest disputes; remits the
funds to the appropriate tax agencies; and handles other
employer-related services. In addition to fees paid by clients
NOTE 10. EMPLOYEE BENEFIT PLANS
A. Stock Plans. The Company has stock option plans which
provide for the issuance to eligible employees of incentive
and non-qualified stock options, which may expire as much
as 10 years from the date of grant, at prices not less than
The Company has stock purchase plans under which eligi-
ble employees have the ability to purchase shares of common
stock at 85% of the lower of market value as of the date of
purchase election or as of the end of the plans. Approximately
2.8 million and 1.8 million shares are scheduled for issuance
on December 31, 2003 and 2002, respectively. Approximately
2.3 million and 2.5 million shares were issued during the
years ended June 30, 2002 and 2001, respectively. At June
30, 2002 and 2001, there were approximately 3.3 million and
5.7 million shares, respectively, reserved for purchase under
the plans. Included in liabilities as of June 30, 2002 and 2001
are employee stock purchase plan withholdings of approxi-
mately $93 million and $94 million, respectively.
for these services, the Company receives interest during
the interval between the receipt and disbursement of these
funds by investing the funds primarily in fixed-income
instruments. The amount of collected but not yet remitted
funds for the Company’s payroll and tax filing and certain
other services varies significantly during the year and aver-
aged approximately $8.4 billion in fiscal 2002, $8.2 billion in
fiscal 2001, and $6.9 billion in fiscal 2000.
the fair market value on the date of grant. At June 30, 2002
there were 10,624 participants in the plans. The aggregate
purchase price for options outstanding at June 30, 2002
was approximately $2.1 billion. The options expire at various
points between 2002 and 2012.
The Company follows Accounting Principles Board Opin-
ion No. 25, “Accounting for Stock Issued to Employees” to
account for its stock option and employee stock purchase
plans. An alternative method of accounting for stock options
is SFAS 123, “Accounting for Stock-Based Compensation.”
Under SFAS No. 123 employee stock options are valued at
grant date using the Black-Scholes valuation model, and
this compensation cost is recognized ratably over the vesting
period. Had compensation cost of the Company’s stock
option and employee stock purchase plans been deter-
mined as prescribed by SFAS No. 123, the pro forma net
earnings impact of options and stock purchase plan rights
A summary of changes in the stock option plans for the three years ended June 30, 2002 is as follows:
(In thousands, except per share amounts) Number of Options Weighted Average Price
Years ended June 30 , 200 2 200 1 200 0 200 2 200 1 200 0
Options outstanding, beginning of year 47 ,496 46,694 47,467 $37 $29 $24
Options granted 12 ,325 10,740 9,646 $49 $57 $46
Options exercised (6 ,48 1 ) (7,956) (6,736) $22 $18 $16
Options canceled (2 ,49 7 ) (1,982) (3,683) $47 $38 $32
Options outstanding, end of year 50 ,843 47,496 46,694 $41 $37 $29
Options exercisable, end of year 21 ,626 19,929 18,719 $31 $25 $19
Shares available for future grants, end of year 13 ,892 1,720 10,478
Shares reserved for issuance under stock option plans 64 ,735 49,216 57,172
Summarized information about stock options outstanding as of June 30, 2002 is as follows:
Outstanding Exercisable
Exercise Number Remaining Average Number Average
Price of Options Life Exercise of Options Exercise
Range (In thousands) (In years) Price (In thousands) Price
Under $ 15 3,1 73 1.7 $1 3 3 ,1 31 $13
$1 5 to $ 25 6 ,2 22 3.9 $2 0 5 ,9 20 $20
$2 5 to $ 35 5 ,7 40 5.5 $2 9 4 ,2 19 $29
$3 5 to $ 45 12 ,761 7.0 $42 5 ,2 6 4 $4 1
$4 5 to $ 55 16 ,535 9.1 $50 1 ,7 8 9 $5 1
Over $ 55 6,4 12 8.2 $6 0 1 ,3 03 $60