AMD 2006 Annual Report Download - page 108

Table of Contents
behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully
transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes
in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate
measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS
123R and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.
SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates in order to derive the Company’s best estimate of awards ultimately expected to vest. The Company estimated forfeitures based on its historical
experience. In the Company’s pro forma information required under SFAS 123 for the periods prior to 2006, the Company accounted for forfeitures as they
occurred.
As a result of adopting SFAS 123R, the Company’s loss from operations, loss before taxes and net loss for the year ended December 31, 2006 was $40
million higher than it would have been if it had continued to account for share-based compensation under Opinion 25. Basic and diluted loss per common share
for the year ended December 31, 2006 was $0.08 higher than it would have been if it had continued to account for share-based compensation under Opinion 25.
Restructuring Charges. The Company accounted for its 2002 restructuring charge in accordance with EITF Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3) for exit and
disposal activities as they were initiated prior to December 30, 2002. Under EITF 94-3 restructuring charges are recorded upon approval of a formal management
plan and are included in the operating results of the period in which such plans have been approved. The Company reviews remaining restructuring accruals on a
quarterly basis and adjusts these accruals when changes in facts and circumstances suggest actual amounts will differ from the initial estimates. Changes in
estimates occur when it is apparent that exit and other costs accrued will be more or less than originally estimated.
Recently Issued Accounting Pronouncements. In June 2006, the EITF reached a final consensus on EITF Issue No. 06-2, Accounting for Sabbatical
Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Accounting for Compensated Absences. Under this consensus, sabbatical leave or other
similar benefits provided to an employee are considered to accumulate, as that term is used in SFAS 43, provided that (a) the employee is required to complete a
minimum service period to be entitled to the benefit, (b) there is no increase to the benefit if the employee provides additional years of service, (c) the employee
continues to be a compensated employee during his or her absence, and (d) the employer does not require the employee to perform any duties during his or her
absence. If these conditions are met, companies are required to accrue for sabbatical leave or other similar benefits as they are earned. The accounting required
under this consensus will be effective for fiscal years beginning after December 15, 2006. Upon adoption, companies can choose to apply the guidance using
either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented, or (b) a change in accounting
principle through a cumulative effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The Company adopted the new
accounting requirement on January 1, 2007, and recorded a cumulative effect adjustment of approximately $24 million to its beginning retained earnings balance.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes (SFAS 109). It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods and
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007