AMD 2009 Annual Report Download - page 128

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Valuation and Expense Information
Stock-based compensation expense related to employee stock options, restricted stock and restricted stock
units and employee stock purchases under the Company’s employee stock purchase plan was allocated in the
consolidated statements of operations as follows:
Year Ended
December 26,
2009
Year Ended
December 27,
2008
Year Ended
December 29,
2007
(In millions)
Cost of sales ................................... $ 3 $ 10 $ 11
Research and development ........................ 40 44 50
Marketing, general, and administrative ............... 32 23 48
Total stock-based compensation expense ............. 75 77 109
Tax benefit ..................................... — — —
Stock-based compensation expense, net of tax ......... $ 75 $ 77 $109
For the year ended December 26, 2009, the Company did not have employee stock-based compensation
expense for discontinued operations. For the year ended December 27, 2008 and December 29, 2007, employee
stock-based compensation expense included in discontinued operations and excluded from continuing operations
was $2 million and $3 million, respectively.
The Company did not capitalize stock-based compensation cost as part of the cost of an asset because the
cost was insignificant.
The Company’s employee stock options have various restrictions including vesting provisions and
restrictions on transfer, and must be exercised prior to their expiration date. The Company uses the lattice-
binomial model in determining the fair value of the employee stock options.
The use of the lattice-binomial model requires the use of extensive actual employee exercise behavior data
and the use of a number of complex assumptions including expected volatility of the Company’s common stock,
risk-free interest rate, and expected dividends. The weighted-average estimated value of employee stock options
granted for the year ended December 26, 2009, December 27, 2008 and December 29, 2007 was $2.59, $2.16 and
$5.81 per share respectively, using the lattice-binomial model with the following weighted-average assumptions:
Year Ended
December 26,
2009
Year Ended
December 27,
2008
Year Ended
December 29,
2007
Expected volatility ....................... 70.51% 72.00% 53.10%
Risk-free interest rate .................... 1.56% 2.4% 4.40%
Expected dividends ...................... 0% 0% 0%
Expected life (in years) ................... 3.67 3.19 3.55
The Company used a combination of the historical volatility of its common stock and the implied volatility
for two-year traded options on the Company’s common stock as the expected volatility assumption required by
the lattice-binomial model. The implied volatility was based upon the availability of actively traded options on
the Company’s common stock. The Company believes that the use of implied volatility is more representative of
future stock price trends for the two-year periods covered by the actively traded options’ maturities than simply
using historical volatility alone. The Company believes that this blended approach provides a better estimate of
the expected future volatility of the Company’s common stock over the expected life of its stock options.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the
Company’s employee stock options. The expected dividend yield is zero as the Company does not expect to pay
dividends in the future.
120