Avid 2006 Annual Report Download - page 90

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80
The following table sets forth the weighted-average key assumptions and fair value results for stock options granted
during the years ended December 31, 2006, 2005 and 2004:
2006 2005 2004
Expected dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 4.84% 4.00% 2.20%
Expected volatility 34.1% 51.0% 61.0%
Expected life (in years) 4.39 4.24 3.40
Weighted-average fair value of options granted $14.16 $22.57 $24.06
The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no
present intention to pay cash dividends. Since adoption of SFAS 123(R) on January 1, 2006, the expected stock-
price volatility assumption used by the Company has been based on recent (six month trailing) implied volatility
calculations. These calculations are performed on exchange-traded options of the Company’s stock, based on the
implied volatility of long-term (nine to thirty-nine month term) exchange traded options, which is consistent with
the requirements of SFAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. The
Company believes that using a forward-looking, market-driven volatility assumption will result in the best estimate
of expected volatility. Prior to adoption of SFAS 123(R), the expected volatility was based on historical volatilities of
the underlying stock. The risk-free interest rate is the U.S. Treasury security rate with a term equal to the expected
life of the option. The expected life is based on company-specific historical experience. With regard to the estimate
of the expected life, the Company considers the exercise behavior of past grants and models the pattern of
aggregate exercises.
Based on the Company’s historical turnover rates, an annualized estimated forfeiture rate of 6.5% has been used
in calculating the estimated compensation cost for the year ended December 31, 2006. Additional expense will be
recorded if the actual forfeiture rates are lower than estimated and a recovery of prior expense will be recorded if
the actual forfeitures are higher than estimated. Prior to the adoption of SFAS 123(R), forfeitures were not estimated
at the time of award.
Information with respect to options granted under all stock option plans for the years ended December 31, 2006,
2005 and 2004, respectively, is as follows:
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(in
thousands)
Options outstanding at December 31, 2003 4,233,477 $17.58
Granted 869,786 $45.31
Assumed in M-Audio acquisition 345,202 $9.21
Exercised (1,749,768) $16.04
Canceled or forfeited (114,508) $19.55
Options outstanding at December 31, 2004 3,584,189 $24.19
Granted 1,792,968 $51.47
Exercised (984,114) $17.18
Canceled or forfeited (172,869) $43.06
Options outstanding at December 31, 2005 4,220,174 $36.65
Granted 412,650 $39.59
Assumed in Sibelius acquisition 34,581 $8.45
Exercised (403,239) $16.87
Forfeited (242,614) $42.78
Canceled (49,509) $50.70
Options outstanding at December 31, 2006 3,972,043 $38.17 7.08 $26,511
Options vested at December 31, 2006 or expected to vest 3,860,835 $37.99 7.03 $26,420
Options exercisable at December 31, 2006 2,582,692 $35.60 6.30 $24,346