Apple 1997 Annual Report Download - page 53

options granted and available for future grant under the DSOP and Prior Plan are not included as outstanding or available for future grant in the
tables and narrative below as they are subject to shareholder approval.
STOCK OPTION ACCOUNTING
The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options and employee stock
purchase plan shares because, as discussed below, the alternative fair value accounting provided for under FAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock options and employee stock purchase plan shares. Under APB 25,
when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required by FAS 123 and has been determined as if the Company had accounted
for its employee stock options granted and employee stock purchase plan purchases subsequent to September 29, 1995, under the fair value
method of that Statement. The fair values for these options and stock purchases were estimated at the date of grant and beginning of the period,
respectively, using a Black-Scholes option pricing model for the single option approach with the following weighted-average assumptions for
1997 and 1996: risk-free interest rate of 6.3% and 5.3% for the options and stock purchases, respectively; an average volatility factor of the
expected market price of the Company's common stock of 74% and 52% for the options and stock purchases, respectively; and weighted-
average expected lives of three years from the grant date and six months from the beginning of the plan period for the options and stock
purchases, respectively. No dividend payments are expected.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock options and employee stock purchase plan shares have characteristics
significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company's
employee stock options and employee stock purchase plan shares.
For purposes of pro forma disclosures, the estimated fair value of the options and shares are amortized to pro forma net loss over the options'
vesting period and the shares' plan period. The Company's pro forma information follows:
The value of the options granted to NeXT optionholders have been included in the total purchase price paid for NeXT and, therefore, are not
included in the adjustment to arrive at the pro forma net loss.
As FAS 123 is applicable only to options granted or shares issued subsequent to September 29, 1995, its pro forma effect will not be fully
reflected until 1999.
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FOR THE YEARS ENDED
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SEPTEMBER 26, 1997 SEPTEMBER 27, 1996
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(IN MILLIONS, EXCEPT LOSS PER SHARE
INFORMATION)
Net loss........................................................ $ (1,082) $ (840)
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Loss per common share........................................... $ (8.58) $ (6.79)
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