ADP 2009 Annual Report Download - page 40

There were no derivative financial instruments outstanding at June 30, 2009 or June 30, 2008.
L. Earnings per Share (“EPS”). The calculations of basic and diluted EPS are as follows:
Options to purchase 32.9 million, 12.6 million, and 16.9 million shares of common stock for fiscal 2009, 2008 and 2007, respectively, 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 fiscal year.
M. Stock-Based Compensation. The Company accounts for stock-based compensation under SFAS No. 123R, “Share-Based Payment,”
which requires stock-
b
ased compensation expense to be recognized in net earnings based on the fair value of the award on the date of the grant.
The Company determines the fair value of stock options issued using a binominal option-pricing model. The binomial option-pricing model
considers a range of assumptions related to volatility, dividend yield, risk-free interest rate and employee exercise behavior. Expected
volatilities utilized in the binomial option-pricing 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 option-pricing model also incorporates
exercise and forfeiture assumptions based on an analysis of historical data. The expected life of a 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.
N. Internal Use Software. Expenditures for major software purchases and software developed or obtained for internal use are capitalized and
amortized over a three- to five-year period on a straight-line basis. For software developed or obtained for internal use, the Company
capitalizes costs in accordance with the provisions of Statement of Position No. 98-1, “Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use.” The Company’ s policy provides for the capitalization of external direct costs of materials and
services associated with developing or obtaining internal use computer software. In addition, the Company also capitalizes certain payroll and
payroll-related costs for employees who are directly associated with internal use computer software projects. The amount of capitalizable
payroll costs with respect to these employees is limited to the time directly spent on such projects. Costs associated with preliminary project
stage activities, training, maintenance and all other post-implementation stage activities are expensed as incurred. The Company also expenses
internal costs related to minor upgrades and enhancements, as it is impractical to separate these costs from normal maintenance activities.
O. Computer Software to be Sold, Leased or Otherwise Marketed. The Company capitalizes certain costs of computer software to be sold,
leased or otherwise marketed in accordance with the provisions of SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed.” The Company’ s policy provides for the capitalization of all software production costs upon reaching
technological feasibility for a specific product. Technological feasibility is attained when software products have a completed working model
whose consistency with the overall product design has been confirmed by testing. Costs incurred prior to the establishment of technological
feasibility are expensed as incurred. The establishment of technological feasibility requires judgment by management and in many instances is
only attained a short time prior to the general release of the software. Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized over a three-year period on a straight-line basis. Maintenance-related costs are expensed as
incurred.
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Effect of Effect of Effect of Effect of
Zero Coupon Employee Employee Employee
Subordinated Stock Option Stock Purchase Restricted Stock
Years ended June 30, Basic Notes Shares Plan Shares Shares Diluted
2009
N
et earnings from continuing operations $ 1,328.2 $ - $ - $ - $ - $ 1,328.2
Weighted average shares (in millions) 503.2 1.2 -1.4 505.8
EPS from continuing operations $ 2.64 $ 2.63
2008
N
et earnings from continuing operations $ 1,161.7 $ - $ - $ - $ - $ 1,161.7
Weighted average shares (in millions) 521.5 4.3 0.3 1.1 527.2
EPS from continuing operations $ 2.23 $ 2.20
2007
N
et earnings from continuing operations $ 1,021.2 $1.1 $ - $ - $ - $1,022.3
Weighted average shares (in millions) 549.7 0.8 4.8 1.0 1.6 557.9
EPS from continuing operations $ 1.86 $1.83