Harman Kardon 2008 Annual Report Download - page 80

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62
Fair Value Determination
The fair value of each option award is estimated on the date of grant using the Black-Scholes option
valuation model, which uses the assumptions noted in the following table.
Years ended June 30,
2008 2007 2006
Expected volatility 35.1% - 52.0% 34.2% - 42.0% 35.0% - 43.0%
Weighted-average volatility 40.7% 36.2% 38.7%
Expected annual dividend $0.05 $0.05 $0.05
Expected term (in years) 1.69 – 6.71 1.42 - 7.69 1.90 - 8.33
Risk-free rate 1.80% - 5.01% 4.43% - 4.97% 4.05% - 5.24%
Groups of option holders (directors, executives and non-executives) that have similar historical behavior
are considered separately for valuation purposes. Expected volatilities are based on historical closing
prices of our common stock over the expected option term. We use historical data to estimate option
exercises and employee terminations within the valuation model. The expected term of options granted is
derived using the option valuation model and represents the estimated period of time from the date of
grant that the option is expected to remain outstanding. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
Stock Option Activity
A summary of option activity under our stock option plans as of June 30, 2008 and changes during the
year is presented below:
Shares
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
($000s)
Outstanding at
July 1, 2007 3,214,238 $ 61.11
Granted 839,253 59.88
Exercised (971,714) 17.72
Forfeited or expired (445,150) 80.71
Outstanding at
June 30, 2008 2,636,627 73.40 6.40 $ 7,018
Exercisable at
June 30, 2008 885,324 $ 62.22 4.06 $ 6,997
The weighted-average grant-date fair value of options granted during the years ended June 30, 2008, 2007
and 2006 was $21.44, $31.61 and $31.87, respectively. The total intrinsic value of options exercised
during the years ended June 30, 2008, 2007 and 2006 was $27.8 million, $42.9 million and $147.2
million, respectively.