ADP 2012 Annual Report Download - page 54

I. Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
J. Foreign Currency Translation. The net assets of the Company’s foreign subsidiaries are translated into U.S. dollars based on exchange
rates in effect for each period, and revenues and expenses are translated at average exchange rates in the periods. Gains or losses from balance
sheet translation are included in accumulated other comprehensive income on the Consolidated Balance Sheets. Currency transaction gains or
losses, which are included in the results of operations, are immaterial for all periods presented.
K. Derivative Financial Instruments. Derivative financial instruments are measured at fair value and are recognized as assets or liabilities on
the Consolidated Balance Sheets with changes in the fair value of the derivatives recognized in either net earnings from continuing operations
or accumulated other comprehensive income, depending on the timing and designated purpose of the derivative.
There were no derivative financial instruments outstanding at June 30, 2012 or June 30, 2011.
L. Earnings per Share (“EPS”). The calculations of basic and diluted EPS are as follows:
Options to purchase 0.9 million, 0.9 million, and 14.0 million shares of common stock for the year ended June 30, 2012, (“fiscal 2012”), the
year ended June 30, 2011, (
“fiscal 2011”), and the year ended June 30, 2010 (“fiscal 2010”), 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.
48
Effect of Effect of
Employee Employee
Stock Option
Restricted Stock
Years ended June 30, Basic Shares Shares Diluted
2012
Net earnings from continuing operations
$
1,388.5
$
1,388.5
Weighted average shares (in millions)
487.3
3.8
1.1
492.2
EPS from continuing operations $
2.85
$
2.82
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