Texas Instruments 2006 Annual Report Download - page 16

TEXAS INSTRUMENTS 2006 ANNUAL REPORT
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Prior Period Pro Forma Presentations:
Under the modified prospective application method, results for prior periods have not been restated to reflect the effects
of implementing SFAS 123(R). The following pro forma information, as required by SFAS No. 148, “Accounting for Stock-
Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123,” is presented for comparative
purposes and illustrates the pro forma effect on income from continuing operations and related per share amounts as if we
had applied the original fair value recognition provisions of SFAS 123 to stock-based employee compensation for periods prior
to implementation of SFAS 123(R).
2005 2004
Income from continuing operations, as reported ............................................... $ 2,173 $ 1,691
Add: Stock-based compensation expense included in reported income from continuing
operations, net of ($58) and ($6) tax (including actual SFAS 123(R) total stock-based
compensation expense recognized since July1, 2005)........................................ 117 12
Deduct: Total stock-based compensation expense determined under fair value-based
method for all awards, net of $122 and $184 tax.............................................. (250) (367)
Deduct: Adjustment for retirement-eligible employees, net of $49 tax ............................ (93) —
Adjusted income from continuing operations .................................................. $1,947 $1,336
Earnings per common share from continuing operations:
Basic – as reported....................................................................... $ 1.33 $ 0.98
Basic – as adjusted for stock-based compensation expense .................................. $ 1.19 $ 0.77
Diluted – as reported ..................................................................... $ 1.30 $ 0.96
Diluted – as adjusted for stock-based compensation expense ................................. $ 1.17 $ 0.76
In our first-quarter 2005 pro forma footnote disclosures, we included a $93 million ($0.05 per share) inception-to-date
adjustment of fair value-based compensation expense to reduce the attribution period for both retirement-eligible employees
and employees who would become retirement eligible prior to vesting of certain grants of nonqualified stock options.
Effective January 1, 2005, stock-based compensation expense for retirement-eligible employees is recognized over a six-
month required service period, and for non-retirement-eligible employees, over the shorter of the period from the grant date
to the date they become retirement eligible (but not less than the six-month required service period) or the normal four-year
vesting period.
Assumptions:
The fair values for the nonqualified stock options and stock options offered under the TI Employees 2002 Stock Purchase
Plan (both actual and pro forma) were estimated using the Black-Scholes option-pricing model with the weighted-average
assumptions listed below.
2006 2005 2004
Long-term Plans (a)
Weighted average grant date fair value, per share ............................ $11.82 $10.07 $15.61
Weighted average assumptions used:
Expected volatility ...................................................... 34 % 50 % 56 %
Expected lives .......................................................... 5 yrs 5 yrs 5 yrs
Risk-free interest rates ................................................... 4.50 % 3.77 % 3 .16 %
Expected dividend yields ................................................. 0.37 % 0.48 % 0.33 %
Stock Purchase Plans (b)
Weighted average fair value, per share ...................................... $4.68 $ 4.56 $ 4.66
Weighted average assumptions used:
Expected volatility ...................................................... — 36 % 35 %
Expected lives .......................................................... — .58 yrs .58 yrs
Risk-free interest rates .................................................. — 2.44 % 1.61 %
Expected dividend yields ................................................. — 0.45 % 0.42 %
(a) Includes stock options under the long-term incentive plans and the director plans.
(b) Includes assumptions for the TI Employees 2002 Stock Purchase Plan. The TI Employees 2005 Stock Purchase Plan, which began October 1, 2005, is a
discount-purchase plan. Consequently, the Black-Scholes option pricing model is not used to determine the fair value per share of these awards. The fair
value per share under this plan is equal to the amount of the discount.