ADP 2012 Annual Report Download - page 43

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Stock-Based Compensation. We measure stock-based compensation expense based on the fair value of the award on the date of grant. We
determine the fair value of stock options issued by 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 our 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 the stock option grants is derived from the output of the binomial model and
represents the period of time that options granted are expected to be outstanding. Determining these assumptions is subjective and complex,
and therefore, a change in the assumptions utilized could impact the calculation of the fair value of our stock options.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is provided under the caption “Quantitative and Qualitative Disclosures About Market Risk” under
“Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Automatic Data Processing, Inc.
Roseland, New Jersey
We have audited the accompanying consolidated balance sheets of Automatic Data Processing, Inc. and subsidiaries (the "Company") as of
June 30, 2012 and 2011, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 2012. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15(a) 2. These
consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements and consolidated financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Automatic Data
Processing, Inc. and subsidiaries as of June 30, 2012 and 2011, and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, the consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's
internal control over financial reporting as of June 30, 2012, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 20, 2012 expressed an
unqualified opinion on the Company's internal control over financial reporting.
41
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 20, 2012