Apple 2009 Annual Report Download - page 85

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Table of Contents
date based on each option’s fair-value as calculated by the BSM option-pricing model. The BSM option-
pricing model incorporates various
assumptions including expected volatility, expected life and interest rates. The expected volatility is 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 awards it grants to employees. The Company recognizes
stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period.
The weighted-average assumptions used for the three years ended September 26, 2009, and the resulting estimates of weighted-
average fair
value per share of options granted and of employee stock purchase plan rights (“stock purchase rights”) during those periods are as follows:
The following table provides a summary of the stock-
based compensation expense included in the Consolidated Statements of Operations for the
three years ended September 26, 2009 (in millions):
Stock-
based compensation expense capitalized as software development costs was not significant as of September 26, 2009 or September 27,
2008. The income tax benefit related to stock-
based compensation expense was $266 million, $169 million and $81 million for 2009, 2008 and
2007, respectively. The total unrecognized compensation cost related to stock options and RSUs expected to vest was $1.4 billion as of
September 26, 2009, which is expected to be recognized over a weighted-average period of 2.53 years.
Note 8 – 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
82
2009
2008
2007
Expected life of stock options
4.54 years
(a)
3.41 years
3.46 years
Expected life of stock purchase rights
6 months
6 months
6 months
Interest rate
-
stock options
2.04%
(a)
3.40%
4.61%
Interest rate
-
stock purchase rights
0.58%
3.48%
5.13%
Volatility
-
stock options
50.98%
(a)
45.64%
38.13%
Volatility
-
stock purchase rights
52.16%
38.51%
39.22%
Dividend yields
—
—
—
Weighted
-
average fair value of stock options granted during the year
$46.71
$62.73
$31.86
Weighted
-
average fair value of employee stock purchase plan rights during the year
$30.62
$42.27
$20.90
(a) In conjunction with the Company’
s 2009 equity compensation program changes, it began issuing primarily RSUs rather than stock options
to employees, although the Company continues to grant stock options to non-
employee directors. Accordingly the weighted average
expected life of stock options was influenced by non-employee director stock option grants, which had a ten-
year expected life. The
weighted average expected life of stock options also affects the resulting interest rate and expected volatility assumptions.
2009
2008
2007
Cost of sales
$
114
$
80
$
35
Research and development
258
185
77
Selling, general and administrative
338
251
130
Total stock
-
based compensation expense
$
710
$
516
$
242