ADP 2009 Annual Report Download - page 54

NOTE 14. EMPLOYEE BENEFIT PLANS
A. Stock Plans. The Company accounts for stock-based compensation in accordance with SFAS No. 123R, “Share-Based Payment” (“SFAS
N
o. 123
R
”), which requires the measurement of stock-based compensation expense to be recognized in net earnings based on the fair value of
the award on the date of grant. Stock-based compensation consists of the following:
zStock 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.
zEmployee Stock Purchase Plan. Prior to January 1, 2009, the Company offered an employee stock purchase plan that allowed eligible
employees to purchase shares of common stock at a price equal to 85% of the market value for the common stock at the date the
purchase price for the offering is determined. Compensation expense related to an offering that has not been completed will continue to
be recognized on a straight-line basis over the vesting period of 24 months that concludes on December 31, 2009.
zRestricted 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 over the period in which the transfer
restrictions exist, which is up to five years from the date of grant. The value of the Company’ s time-based restricted stock, based
on market prices on the date of grant, is recognized as compensation expense over the restriction period on a straight-line basis.
{Performance-Based Restricted Stock. The performance-based restricted stock program contains a two-year performance period
and a subsequent six-month service period. Under this program, the Company communicates “target awards” to employees at the
beginning of a performance period and, as such, dividends are not paid in respect of the “target awards” during the performance
period. After the two-year performance period, if the performance targets are achieved, associates are eligible to receive dividends
on any shares awarded under the program. The performance target is based on EPS growth over the performance period with
possible payouts ranging from 0% to 125% of the “target awards”. SFAS No. 123R requires the measurement of stock-based
compensation based upon the fair value of the award on the grant date. Compensation expense is recognized on a straight-line
basis over the vesting term of approximately 30 months based upon the probable performance target that will be met.
The Company currently utilizes treasury stock to satisfy stock option exercises, issuances under its employee stock purchase plan and restricted
stock awards. Stock-based compensation expense of $96.0 million, $123.6 million and $130.5 million was recognized in earnings from
continuing operations in fiscal 2009, 2008 and 2007, respectively, as well as related tax benefits on such stock compensation expense of $27.6
million, $37.0 million and $38.9 million, respectively.
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Years ended June 30, 2009 2008 2007
Operating expenses $ 20.6 $ 25.4 $ 23.3
Selling, general and administrative expenses 60.4 76.7 84.7
System development and programming costs 15.0 21.5 22.5
Total pretax stock-based compensation expense included in
continuing operations $ 96.0 $ 123.6 $ 130.5
Total pretax stock-based compensation expense included in
discontinued operations - - 18.2
Total pretax stock-based compensation expense $ 96.0 $ 123.6 $ 148.7