Harman Kardon 2007 Annual Report Download - page 72

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59
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,
2007 2006 2005
Expected volatility 34.2% - 42.0% 35.0% - 43.0% 41.0%
Weighted-average volatility 36.2% 38.7% 41.0%
Expected annual dividend $0.05 $0.05 $0.05
Expected term (in years) 1.42 - 7.69 1.90 - 8.33 6.13
Risk-free rate 4.43% - 4.97% 4.05% - 5.24% 3.69%
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, 2007 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, 2006
3,299,720
$ 47.04
Granted
793,250
104.17
Exercised
(687,992)
38.53
Forfeited or expired
(190,740)
78.24
Outstanding at
June 30, 2007
3,214,238
61.11
6.41
$181,135
Exercisable at
June 30, 2007
1,519,408
$ 31.76
4.31
$129,321
The weighted-average grant-date fair value of options granted during the years ended June 30, 2007, 2006
and 2005 was $31.61, $31.87 and $45.49, respectively. The total intrinsic value of options exercised
during the years ended June 30, 2007, 2006 and 2005 was $42.9 million, $147.2 million and $231.7
million, respectively.