AMD 2006 Annual Report Download - page 75

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valuation allowance related to other temporary differences. This deferred tax liability cannot be used as a source of realization for deferred tax assets because the
underlying tax deductible goodwill is indefinite lived. Once the valuation allowance on U.S. deferred tax assets, net of deferred tax liabilities, is removed
continued increases to this deferred tax liability may not directly increase the tax provision as this increase will be aggregated with other deferred tax changes.
While the valuation allowance is present our tax expenses will not decline proportionately with declines in our consolidated income.
Stock-Based Compensation Expense
On December 26, 2005, we adopted SFAS 123R, which requires the measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors, including employee stock options and employee stock purchases related to our Employee Stock Purchase Plan, based
on estimated fair values. We adopted SFAS 123R using the modified prospective transition method. Prior to the adoption of SFAS 123R, we recognized
stock-based compensation expense in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Upon
adoption of SFAS 123R, we changed our method of attributing the value of stock-based compensation expense from the multiple-option (i.e. accelerated)
approach to the single option (i.e. straight-line) method. Also, upon adoption of SFAS 123R, we changed the method of valuing stock option awards from the
Black-Scholes option pricing model, which was previously used for our pro forma information disclosures of stock-based compensation expense as required
under SFAS No. 123, Stock Based Compensation (SFAS 123) to a lattice-binomial option-pricing model. The following table summarizes our stock-based
compensation expense related to employee stock options, restricted stock, restricted stock units and employee stock purchases pursuant to our Employee Stock
Purchase Plan under SFAS 123R for the year ended December 31, 2006, which we recorded in our consolidated results of operations as follows:
Stock-based compensation included as a component of:
Year Ended
December 31,
2006
(In millions)
Cost of sales $ 8
Research and development 30
Marketing, general, and administrative 39
Total stock-based compensation expense related to employee stock options, restricted stock, restricted stock units, and employee
stock purchases 77
Tax benefit —
Stock-based compensation expense related to employee stock options, restricted stock, restricted stock units, and employee stock
purchases, net of tax $ 77
We recognized minimal stock-based compensation expense for the years ended December 25, 2005, and December 26, 2004.
In anticipation of the adoption of SFAS 123R, beginning in the first quarter of 2006 we changed the quantity and type of instrument we primarily use in
stock-based payment programs for our employees by shifting from granting primarily stock options to granting primarily restricted stock units. Restricted stock
units are awards that obligate us to issue a specific number of shares of our common stock if the vesting terms and conditions are satisfied. Restricted stock units
based on continued service generally vest over three to four years from the date of grant. Restricted stock units based solely on performance conditions generally
do not vest for at least one year from the date of grant. Beginning in the first quarter of 2006, all employees below the level of vice president receive restricted
stock units and employees at the vice president level and above receive grants of restricted stock units and stock options. As of December 31, 2006, we had $56
million of total unrecognized compensation expense, net of estimated forfeitures, related to stock options that will be recognized over the weighted average
70
Source: ADVANCED MICRO DEVIC, 10-K, March 01, 2007