AMD 2010 Annual Report Download - page 124

Valuation and Expense Information
Stock-based compensation expense related to employee stock options, restricted stock and restricted stock
units and employee stock purchases under the Company’s employee stock purchase plan was allocated in the
consolidated statements of operations as follows:
2010 2009 2008
(In millions)
Cost of sales ...................................................... $ 4 $ 3 $10
Research and development ........................................... 46 40 44
Marketing, general, and administrative ................................. 37 32 23
Total stock-based compensation expense, net of tax ....................... $87 $75 $77
During 2010, 2009, and 2008, the Company did not realize any excess tax benefits related to stock-based
compensation and therefore the Company did not record any related financing cash flows.
For the year ended December 25, 2010 and December 26, 2009, the Company did not have employee stock-
based compensation expense for discontinued operations. For the year ended December 27, 2008, employee
stock-based compensation expense included in discontinued operations and excluded from continuing operations
was $2 million.
The Company did not capitalize stock-based compensation cost as part of the cost of an asset because the
cost was insignificant.
The Company’s employee stock options have various restrictions including vesting provisions and
restrictions on transfer, and must be exercised prior to their expiration date. The Company uses the lattice-
binomial model in determining the fair value of the employee stock options.
The use of the lattice-binomial model requires the use of extensive actual employee exercise behavior data
and the use of a number of complex assumptions including expected volatility of the Company’s common stock,
risk-free interest rate, and expected dividends. The weighted-average estimated value of employee stock options
granted for the year ended December 25, 2010, December 26, 2009 and December 27, 2008 was $3.20, $2.59 and
$2.16 per share respectively, using the lattice-binomial model with the following weighted-average assumptions:
2010 2009 2008
Expected volatility ..................................... 55.97% 70.51% 72.00%
Risk-free interest rate ................................... 1.34% 1.56% 2.4%
Expected dividends .................................... 0% 0% 0%
Expected life (in years) ................................. 3.71 3.67 3.19
The Company used a combination of the historical volatility of its common stock and the implied volatility
for publicly traded options on the Company’s common stock as the expected volatility assumption required by
the lattice-binomial model. The implied volatility was based upon the availability of actively traded options on
the Company’s common stock. The Company believes that the use of implied volatility is more representative of
future stock price trends for the periods covered by the actively traded options’ maturities than simply using
historical volatility alone. The Company believes that this blended approach provides a better estimate of the
expected future volatility of the Company’s common stock over the expected life of its stock options.
The risk-free interest rate assumption is based upon observed interest rates commensurate with the term of
the Company’s employee stock options. The expected dividend yield is zero as the Company does not expect to
pay dividends in the future.
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