AMD 1996 Annual Report Download - page 242

STOCK APPRECIATION RIGHTS PLANS
The Company maintains three stock appreciation rights plans under which stock
appreciation rights (SARs) either have been or may be granted to key employees.
The number of SARs exercised plus common stock issued under the stock option
plans may not exceed the number of shares authorized under the stock option
plans. SARs may be granted in tandem with outstanding stock options, in tandem
with future stock option grants or independently of any stock options.
Generally, the terms of SARs granted under the plans are similar to those of
options granted under the stock option plans, including exercise prices,
exercise dates and expiration dates. To date, the Company has granted only
limited SARs, which become exercisable only in the event of certain changes in
control of the Company.
RESTRICTED STOCK AWARD PLAN
The Company established the 1987 restricted stock award plan under which up to
two million shares of common stock may be issued to employees, subject to terms
and conditions determined at the discretion of the Board of Directors. The
Company entered into agreements to issue 320,609 and 226,427 shares in 1996 and
1995, respectively. To date, agreements covering 230,212 shares have been
canceled without issuance and 1,333,891 shares have been issued pursuant to
prior agreements. At December 29, 1996, agreements covering 656,109 shares were
outstanding under the plan and 10,000 shares remained available for future
awards. Outstanding awards vest under varying terms within five years.
STOCK-BASED COMPENSATION
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25), and related Interpretations, in accounting for stock-
based awards to employees. Under APB 25, the Company generally recognized no
compensation expense with respect to such awards.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123 for awards granted after December 31, 1994 as if
the Company had accounted for its stock-based awards to employees under the fair
value method of SFAS 123. The fair value of the Company's stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The Black-
Scholes option valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock-based awards to employees. The fair value
of the Company's stock-based awards to employees was estimated assuming no
expected dividends and the following weighted-average assumptions:
Options ESPP
------------------------------------------
1996 1995 1996 1995
------------------------------------------
Expected life (years) 3.16 2.43 0.25 0.25
Expected stock price volatility 48.02% 53.29% 47.81% 42.15%
Risk-free interest rate 6.44% 5.88% 5.29% 5.69%
----- ----- ----- -----
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized over the options' vesting period (for options)
and the three-month purchase period (for stock purchases under the ESPP). The
Company's pro forma information follows:
(Thousands except per share amounts) 1996 1995
---------------------
Net income (loss) -- as reported $(68,950) $216,326
Net income (loss) -- pro forma (89,451) 205,047
Primary net income (loss) per share -- as reported (0.51) 1.59
Primary net income (loss) per share -- pro forma (0.66) 1.51
Fully diluted net income (loss) per share -- as reported (0.51) 1.57
Fully diluted net income (loss) per share -- pro forma (0.66) 1.49
-------- --------
Because SFAS 123 is applicable only to awards granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until approximately 1999.
A total of 10,332,224 options were granted during 1996 with exercise prices
equal to the market price of the stock on the grant date. The weighted-average
exercise price and weighted-average fair value
33
Source: ADVANCED MICRO DEVIC, 10-K, March 20, 1997