Apple 2001 Annual Report Download - page 49

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Note 9—Stock-Based Compensation
The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," 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 SFAS No. 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 Opinion No. 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 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 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. The Company uses projected volatility rates, which are based upon historical volatility rates trended into future years. 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.
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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):
Note 10—Commitments and Contingencies
Lease Commitments
2001 2000 1999
Expected life of options
4 years
4 years
4 years
Expected life of stock purchases
6 months
6 months
6 months
Interest rate
—
stock options
4.90%
6.20%
5.02%
Interest rate
—
stock purchases
5.97%
6.21%
4.89%
Volatility
—
stock options
66%
67%
55%
Volatility
—
stock purchases
90%
60%
59%
Dividend yields
0
0
0
Weighted
-
average fair value of options granted during the year
$
10.15
$
25.92
$
9.61
2001
2000
1999
Net income (loss)
—
as reported
$
(25)
$
786
$
601
Net income (loss)
—
pro forma
$
(396)
$
483
$
528
Net income (loss) per common share
—
as reported
Basic $
(0.07)
$
2.42
$
2.10
Diluted $
(0.07)
$
2.18
$
1.81
Net income (loss) per common share
—
pro forma
Basic $
(1.15)
$
1.49
$
1.84
Diluted $
(1.22)
$
1.38
$
1.61