AMD 2006 Annual Report Download - page 141

Table of Contents
Pro Forma Disclosures under SFAS 123 for Periods Prior to Fiscal 2006. Prior to fiscal 2006, the Company followed the disclosure-only provisions of
SFAS 123. Pursuant to SFAS 123, for pro forma disclosure purposes only, the Company estimates the fair value of its stock-based awards to employees using a
Black-Scholes option pricing model. The Black-Scholes model was developed for use in estimating fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including expected stock price volatility.
Because our 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 may not provide a reliable single measure of the
fair value of our stock-based awards to employees. The fair value of our stock-based awards to employees was estimated assuming no expected dividends and the
following weighted-average assumptions:
Options ESPP
2005 2004 2005 2004
Expected life (years) 3.00 3.68 0.25 0.25
Expected stock price volatility 63.9% 78.3% 40.5% 45.2%
Risk-free interest rate 3.84% 2.74% 3.61% 1.69%
The following table presents the effect on net income (loss) and earnings per share as if the Company had applied the fair-value recognition provisions of
SFAS 123 to all of its share-based compensation awards for the years ended December 25, 2005 and December 26, 2004:
2005 2004
(In millions except per share
amounts)
Net income (loss)—as reported $ 165 $ 91
Add: employee stock-based compensation expense included in reported net
income (loss), net of related tax effects under APB 25 5 1
Less: employee stock-based compensation expense determined under the
fair-value based method, net of related tax effects. (122) (156)
Net income (loss)—pro forma $ 48 $ (64)
Basic net income (loss) per common share—as reported $ 0.41 $ 0.25
Diluted net income (loss) per common share—as reported $ 0.40 $ 0.25
Basic net income (loss) per common share—pro forma $ 0.12 $ (0.18)
Diluted net income (loss) per common share—pro forma $ 0.12 $ (0.18)
The Company granted a total of 8,144,713 stock-based awards during 2005 with exercise prices equal to the closing price of its common stock on the grant
date. The weighted-average exercise price and weighted-average fair value of these awards were $18.42 and $8.07. The Company did not grant any stock options
with exercise prices greater than or less than the closing price of its common stock on the grant date during 2005. In addition, the Company also granted
1,052,401 shares of restricted stock in 2005 at less than the closing price of its common stock on the grant date. The grant price and weighted-average fair value
of these awards were $0 and $21.88.
The Company granted a total of 25,999,480 stock-based awards during 2004 with exercise prices equal to the closing price of its common stock on the
grant date. The weighted-average exercise price and weighted-average fair value of these awards were $14.56 and $8.20. The Company granted a total of 80,265
stock-based awards during 2004 with exercise prices greater than the closing price of its common stock on the grant date. The weighted-average exercise price
and weighted-average fair value of these awards were $14.54 and $6.34. The Company granted 41,000 stock-based awards in 2004 at less than the closing price
of its common stock on the grant date, excluding 43,000 shares of restricted stock granted in 2004 at less than closing price of its common stock on the grant
date. The weighted-average exercise price and weighted-average fair value of these awards were $1.39 and $13.61.
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Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007