Texas Instruments 2007 Annual Report Download - page 35

TEXAS INSTRUMENTS 2007 ANNUAL REPORT 33
Assumed health care cost trend rates for the U.S. retiree health care plan at December 31 are:
U.S. Retiree
Health Care
2007 2006
Assumed health care trend rate for next year:
Attributed to less than age 65 .......................................................... 9.0%9.0%
Attributed to age 65 or greater ......................................................... 9.0%10.0%
Ultimate trend rate .................................................................... 5.0%5.0%
Year in which ultimate trend rate is reached:
Attributed to less than age 65 .......................................................... 2016 2011
Attributed to age 65 or greater ......................................................... 2016 2012
Increasing or decreasing health care cost trend rates by one percentage point would have increased or decreased the accumulated
postretirement benefit obligation for the U.S. retiree health care plan at December 31, 2007, by $14 million and the service cost and
interest cost components of 2007 plan expense by $1 million.
Deferred Compensation Arrangements
We have a non-qualified deferred compensation plan, which allows certain highly compensated employees the option to defer receipt
of a portion of their salary, bonus and profit sharing. Employees who participate in the deferred compensation plan can select one of
eight distribution options offered by the plan. Payments are made after the employee terminates, based on their distribution election
and plan balance. Participants can earn a return on their deferred compensation that is based on hypothetical investments in the same
investment funds and TI common stock offered in our defined contribution plans. Changes in the market value of these participant
investments are reflected as an adjustment to the liability for deferred compensation with an offset to compensation expense.
As of December 31, 2007, the liability to the participants of the deferred compensation plan was $199 million and is recorded in
non-current liabilities. This amount reflects the accumulated participant deferrals and earnings thereon as of that date. We make no
contributions to the deferred compensation plan and so remain liable to the participants. However, to serve as an economic hedge
against the financial impact of changes in market values of these hypothetical investments, we invest in similar mutual funds and have
entered into a forward purchase contract (explained below). Changes in the fair value of these mutual fund investments are recognized
in compensation expense.
As no shares of TI common stock are actually held for the account of participants, as of December 31, 2007, we have a forward
purchase contract with a commercial bank to acquire 550,000 shares of TI common stock at a fixed price of $32.37 per share at the
end of the contract term or, at our option, to settle in cash with the bank. We are also able, at our discretion, to unwind all or part of
this contract prior to the end of the contract term. The contract is intended to be an economic hedge to minimize the earnings impact
from the effect of fluctuations in stock market prices on the portion of the deferred compensation plan obligations that are denominated
in TI stock. The changes in the fair value of the forward contract are reflected in compensation expense. Since December 31, 2005,
participants have been prohibited from directing any further transfers to the TI common stock portion of the hypothetical investments,
so this hedge will remain at or below 550,000 shares of TI common stock in the future.
11. Profit Sharing and Savings Plans
We pay profit sharing benefits primarily under the TI Employee Profit Sharing Plan. Profit sharing benefits are generally formulaic and
determined by one or more business or company-wide financial metrics. This plan provides for profit sharing to be paid based solely
upon TI’s operating margin for the full calendar year. Under this plan, a minimum threshold of 10 percent operating margin must be
achieved before any profit sharing is paid. Profit sharing at 10 percent operating margin will be 2 percent of eligible payroll. The
maximum amount of profit sharing available under the plan is 20 percent of eligible payroll and would only be paid when TI’s operating
margin meets or exceeds 35 percent for a full calendar year.