AMD 2005 Annual Report Download - page 58

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Table of Contents
As of the required effective date, all public entities that used the fair-value-based method for either recognition or disclosure under the original SFAS 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 SFAS 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 SFAS 123.
In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC’s interpretation
of SFAS 123R and the valuation of share-based payments for public companies. We will apply the modified prospective method, which requires that
compensation expense be recognized for all share-based payments granted, modified or settled after the date of adoption plus the current period expense for
unvested awards issued prior to the adoption of this standard. No expense is recognized for awards vested in prior periods. Although we cannot estimate the exact
amount at this time, we expect that the adoption of this statement will have a material effect on our financial statements and will depend on the levels of
share-based payments granted in the future. Due to the acceleration of options during 2005, the compensation expense previously reported in pro forma
disclosures is not expected to be representative of future expected compensation expense. In addition, beginning in 2006, AMD will change its method of
valuation for share-based awards granted from the Black-Scholes option-pricing model, which was previously used for our pro forma information required under
SFAS 123, to a lattice-binominal option-pricing model. In 2006, we also expect to issue fewer stock options than have been issued in the past, and plan to grant
employees primarily restricted stock units.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (SFAS 154), which replaces APB Opinion No. 20,
“Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.” SFAS 154
provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS 154 in the first quarter of 2006 and
do not expect that the adoption of this standard will have a material impact on our consolidated results of operations and financial condition.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (SFAS 151). This statement clarifies
that abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted material (spoilage) are required to be recognized as
current period charges. In addition, the statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity
of the production facilities. The provisions of this statement became effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We
adopted this statement at the beginning of 2006. Because we are already in compliance with SFAS 151, the adoption of this statement will not have an impact on
its consolidated results of operations and financial condition.
53
Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006