Apple 2000 Annual Report Download - page 58

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--STOCK-BASED COMPENSATION (CONTINUED)
Pro forma information regarding net income (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. The weighted-
average fair value per share of options granted during 1998
includes the excess value of the repriced options granted during the fiscal year less the value of the related forfeited options on the date the
repriced options were granted. 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 that 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 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):
As SFAS No. 123 is applicable only to options granted or shares issued subsequent to September 29, 1995, its pro forma effect was not fully
reflected until 1999.
55
2000 1999 1998
--------- --------- ---------
Expected life of options.................... 4 years 4 years 3.5 years
Expected life of stock purchases............ 6 months 6 months 6 months
Interest rate--stock options................ 6.20% 5.02% 5.54%
Interest rate--stock purchases.............. 6.21% 4.89% 5.37%
Volatility--stock options................... 67% 55% 78%
Volatility--stock purchases................. 60% 59% 56%
Dividend yields............................. -- -- --
Weighted-average fair value of options
granted during the year................... $ 25.92 $ 9.61 $ 6.49
2000 1999 1998
-------- -------- --------
Net income--as reported................................ $ 786 $ 601 $ 309
Net income--pro forma.................................. $ 483 $ 528 $ 266
Net income per common share--as reported
Basic................................................ $2.42 $2.10 $1.17
Diluted.............................................. $2.18 $1.81 $1.05
Net income per common share--pro forma
Basic................................................ $1.49 $1.84 $1.01
Diluted.............................................. $1.38 $1.61 $0.93