ADP 2011 Annual Report Download - page 42

L. Earnings per Share (“
EPS ” ). The calculations of basic and diluted EPS are as follows:
Options to purchase 0.9 million, 14.0 million, and 32.9 million shares of common stock for the year ended June 30, 2011, (“fiscal
2011 ” ), the year ended June 30, 2010 (“ fiscal 2010 ” ), and the year ended June 30, 2009 (“ fiscal 2009 ” ), 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 recognizes stock - based compensation expense 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 binomial 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. 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. 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.
42
Effect of
Effect of
Employee
Employee
Stock Option
Restricted Stock
Years ended June 30,
Basic
Shares
Shares
Diluted
2011
Net earnings from continuing operations
$
1,254.2
$
1,254.2
Weighted average shares (in millions)
493.5
3.8
1.0
498.3
EPS from continuing operations
$
2.54
$
2.52
2010
Net earnings from continuing operations
$
1,207.3
$
1,207.3
Weighted average shares (in millions)
500.5
2.2
1.0
503.7
EPS from continuing operations
$
2.41
$
2.40
2009
Net earnings from continuing operations
$
1,325.1
$
1,325.1
Weighted average shares (in millions)
503.2
1.2
1.4
505.8
EPS from continuing operations
$
2.63
$
2.62