Apple 1998 Annual Report Download - page 59

NOTE 7--STOCK-BASED COMPENSATION (CONTINUED)
Pro forma information regarding net income and loss per share is required by SFAS No. 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. The assumptions used for each of the last
three fiscal years and the resulting estimate of weighted-average fair value per share of options granted during those years are as follows:
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 income (loss) over the
options' vesting period and the shares' plan period. The Company's pro forma information for each of the last three fiscal years follows (in
millions, except per share amounts):
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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1998 1997 1996
----------- ----------- -----------
Expected life of options......................................... 3 years 3 years 3 years
Expected life of stock purchases................................. 6 months 6 months 6 months
Risk free interest rate--stock options........................... 5.54% 6.3% 6.3%
Risk free interest rate--stock purchases......................... 5.37% 5.3% 5.3%
Expected volatility--stock options............................... 78% 74% 74%
Expected volatility--stock purchases............................. 56% 52% 52%
Dividend yields.................................................. 0 0 0
Weighted-average fair value of options granted during the year... $12.98 $7.49 $12.66
1998 1997 1996
--------- --------- ---------
Net income (loss)--as reported................................... $ 309 $ (1,045) $ (816)
Net income (loss)--pro forma..................................... $ 266 $ (1,082) $ (840)
Net income (loss) per common share--as reported
Basic.......................................................... $ 2.34 $ (8.29) $ (6.59)
Diluted........................................................ $ 2.10 $ (8.29) $ (6.59)
Net income (loss) per common share--pro forma
Basic.......................................................... $ 2.02 $ (8.58) $ (6.79)
Diluted........................................................ $ 1.83 $ (8.58) $ (6.79)