Apple 2006 Annual Report Download - page 107

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8—Shareholders' Equity (Continued)
The number of shares of restricted stock that vested during 2006 was 10 million, which had a fair value of $646.6 million. The grant-date fair
value of restricted stock that fully vested during 2006 was $7.48 per share. For the years ended September 30, 2006, September 24, 2005, and
September 25, 2004, compensation expense related to restricted stock was $4.6 million, $24.9 million, and $24.9 million, respectively.
Note 9—Stock-Based Compensation
The Company has provided pro forma disclosures in Note 1 of these Notes to Consolidated Financial Statements of the effect on net income
and earnings per share for the years ended September 24, 2005 and September 25, 2004 as if the fair value method of accounting for stock
compensation had been used for its employee stock option grants and employee stock purchase plan purchases. These pro forma effects have
been estimated at the date of grant and beginning of the period, respectively, using the BSM option pricing model.
The weighted average assumptions used for 2006, 2005, and 2004 and the resulting estimates of weighted-average fair value per share of
options granted and for stock purchases during those periods are as follows:
Pursuant to SFAS No. 123R, the expected volatility assumptions used by the Company are based 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 and other relevant
factors including implied volatility in market traded options on the Company’s common stock. 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.
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 15 years and
generally provide
106
2006
2005
2004
Expected life of stock options
3.56 years
3.57 years
3.50 years
Expected life of stock purchases
6 months
6 months
6 months
Interest rate
—
stock options
4.60
%
3.73
%
2.40
%
Interest rate
—
stock purchases
4.29
%
2.54
%
1.18
%
Volatility
—
stock options
40.34
%
39.52
%
40.00
%
Volatility
—
stock purchases
39.56
%
40.88
%
35.82
%
Dividend yields
—
—
—
Weighted
-
average fair value of options granted during the year
$
23.16
$
14.41
$
3.69
Weighted
-
average fair value of stock purchases during the year
$
14.06
$
7.55
$
2.78