AMD 2004 Annual Report Download - page 84

Table of Contents
Compensation expense resulting from the issuance of fixed term stock option awards is measured as the difference between the exercise price of the option and
the fair market value of the underlying share of company stock subject to the option on the award’s grant date. The Company also makes pro forma fair value
disclosures required by SFAS 123 which reflects the impact on net income (loss) and net income (loss) per share had the Company applied the fair value method
of accounting for its stock-based awards to employees. The Company estimates the fair value of its stock-based awards to employees using a Black-Scholes
option pricing model. See Note 10 for detailed assumptions used by the Company to compute the fair value of stock-based awards for purposes of pro forma
disclosures under SFAS 123. Following is the pro forma effect on net income (loss) and net income (loss) per share for all periods presented had the Company
applied SFAS 123’s fair value method of accounting for stock-based awards issued to its employees.
2004 2003 2002
(In thousands except per share amounts)
Net income (loss)—as reported $ 91,156 $ (274,490) $ (1,303,012)
Plus: compensation expense recorded under APB 25 995 1,920 2,891
Less: SFAS 123 compensation expenses (155,519) (80,464) (149,827)
Net income (loss)—pro forma $ (63,368) $ (353,034) $ (1,449,948)
Basic net income (loss) per common share—as reported $ 0.25 $ (0.79) $ (3.81)
Diluted net income (loss) per common share—as reported $ 0.25 $ (0.79) $ (3.81)
Basic net loss per common share—pro forma $ (0.18) $ (1.02) $ (4.24)
Diluted net loss per common share—pro forma $ (0.18) $ (1.02) $ (4.24)
New Accounting Pronouncements. In December 2004, the Financial Accounting Standard Board (FASB) issued a revision to Statement of Financial
Accounting Standard No. 123, “Accounting for Stock-Based Compensation” (SFAS 123R). SFAS 123R eliminates the Company’s ability to use the intrinsic
value method of accounting under APB 25, and generally requires a public entity to reflect on its income statement, instead of pro forma disclosures in its
financial footnotes, the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The
grant-date fair value will be estimated using option-pricing models adjusted for the unique characteristics of those equity instruments. Among other things, SFAS
123R also requires entities to estimate the number of instruments for which the requisite service is expected to be rendered, and if the terms or conditions of an
equity award are modified after the grant date, to recognize incremental compensation cost for such a modification by comparing the fair value of the modified
award with the fair value of the award immediately before the modification. In addition, SFAS 123R amends FASB Statement No. 95, “Statement of Cash
Flows,” to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS 123R is effective generally for
public companies as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. SFAS 123R applies to all awards granted after
the required effective date and to awards modified, repurchased, or cancelled after that date. As of the required effective date, all public entities that used the
fair-value-based method for either recognition or disclosure under the original Statement 123 will apply this revised statement using a modified version of
prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding
awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under the original Statement 123
for either recognition or pro forma disclosures. For periods before the required effective date, those entities may elect to apply a modified version of retrospective
application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by the
original Statement 123. The Company is currently evaluating the requirements of SFAS 123R and will adopt this statement at the effective date. Although the
exact amount cannot be estimated at this time, the Company expects that the adoption of this statement will have a material effect on its financial statements.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2005