AMD 2007 Annual Report Download - page 105

Table of Contents
public companies. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R. (See Note 12 for a further discussion on stock-based
compensation).
The Company’s determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the
Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the
Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise 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 September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 does not require any new fair value measurements but clarifies the fair value definition, establishes a fair value hierarchy that prioritizes the
information used to develop assumptions used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 clarifies that the fair
value is the exchange price in an orderly transaction between market participants to sell the asset or transfer the liability in the market. The fair value hierarchy
gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. It
emphasizes that fair value is a market-based measurement, not an entity-specific measurement and a fair value measurement should therefore be based on the
assumptions that market participants would use in pricing the asset or liability. SFAS 157 expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition, including the inputs used to measure fair value and the effect of such measurements on
earnings for the period. In its February 6, 2008 meeting, the FASB decided to (i) partially defer the effective date of SFAS 157 for one year for certain
nonfinancial assets and nonfinancial liabilities and (ii) remove certain leasing transactions from the scope of SFAS 157. The partial deferral is applicable to
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Source: ADVANCED MICRO DEVIC, 10-K, February 26, 2008