Apple 2004 Annual Report Download - page 98

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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:
For purposes of the pro forma disclosures provided pursuant to SFAS No. 123, the expected volatility assumptions used by the Company prior to
the third quarter of 2003 had been based solely on the historical volatility of the Company's common stock over the most recent period
commensurate with the estimated expected life of the Company's stock options. Beginning in the third quarter of 2003, the Company has
modified this approach to consider other relevant factors including implied volatility in market traded options on the Company's common stock
and the impact of unusual fluctuations not reasonably expected to recur on the historical volatility of the Company's common stock. The
Company will continue to monitor these and other relevant factors in developing the expected volatility assumption used to value future awards.
Beginning in the third quarter of 2003, the Company shortened its estimate of the expected life of new options granted to its employees from
4 years to 3.5 years. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock
options it grants to employees. The change in the expected life assumption made during the third quarter of 2003 was the result of the expected
impact of shortening the contractual life of new options granted to employees from 10 years to 7 years and changing the vesting provisions of
new options granted to employees from 4 year straight-line annual vesting to 4 year straight-line quarterly vesting.
Note 10—Commitments and Contingencies
Lease Commitments
The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company
does not currently utilize any other off-balance-sheet financing arrangements. The major facility leases are for terms of 5 to 10 years and
generally provide renewal options for terms of 3 to 5 additional years. Leases for retail space are for terms of 5 to 16 years and often contain
multi-year renewal options. As of September 25, 2004, the Company's total future minimum lease payments under noncancelable operating
leases were $617 million, of which $436 million related to leases for retail space.
Rent expense under all operating leases, including both cancelable and noncancelable leases, was $103 million, $97 million, and $92 million in
2004, 2003, and 2002, respectively. Future minimum lease
94
2004
2003
2002
Expected life of stock options
3.5 years
3.5
-
4 years
4 years
Expected life of stock purchases
6 months
6 months
6 months
Interest rate
—
stock options
2.33%
-
3.15
%
2.14%
-
2.45
%
2.90
%
Interest rate
—
stock purchases
0.96%
-
1.67
%
1.10%
-
1.77
%
2.71
%
Volatility
—
stock options
40
%
40%
-
63
%
64
%
Volatility
—
stock purchases
32%
-
44
%
35%
-
44
%
51
%
Dividend yields
—
—
—
Weighted
-
average fair value of options granted during the year
$
7.37
$
6.63
$
10.11
Weighted
-
average fair value of stock purchases during the year
$
5.56
$
4.24
$
6.73