Texas Instruments 2008 Annual Report Download - page 15

TEXAS INSTRUMENTS 2008 ANNUAL REPORT [ 13 ]
We determine expected volatility on all options granted after July 1, 2005, using available implied volatility rates rather than on an
analysis of historical volatility. We believe that market-based measures of implied volatility are currently the best available indicators of
the expected volatility used in these estimates.
We determine expected lives of options based on the historical share option exercise experience of our optionees using a rolling
10-year average. We believe the historical experience method is the best estimate of future exercise patterns currently available.
Risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a
remaining term equal to the expected life of the options.
Expected dividend yields are based on the approved annual dividend rate in effect and the current market price of our common
stock at the time of grant. No assumption for a future dividend rate change has been included unless there is an approved plan to
change the dividend in the near term.
The fair value per share of RSUs that we grant is determined based on the market price of our common stock on the date of grant.
The TI Employees 2005 Stock Purchase Plan is a discount-purchase plan and 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 equals the amount of the discount.
Long-term incentive and director compensation plans
We have stock options outstanding to participants under the Texas Instruments 2000 Long-Term Incentive Plan, the Texas Instruments
2003 Long-Term Incentive Plan and the Texas Instruments 1996 Long-Term Incentive Plan. No further options may be granted under the
1996 plan. We also assumed stock options granted under the Burr-Brown 1993 Stock Incentive Plan and the Radia Communications,
Inc. 2000 Stock Option/Stock Issuance Plan. Unless the options are acquisition-related replacement options, the option price per share
may not be less than 100 percent of the fair market value of our common stock on the date of the grant. Substantially all the options
have a 10-year term and vest ratably over four years. Our options generally continue to vest after the option recipient retires.
We have RSUs outstanding under the 2000 Long-Term Incentive Plan and the 2003 Long-Term Incentive Plan. Each RSU represents
the right to receive one share of TI common stock on the vesting date, which is generally four years after the date of grant. Upon vesting,
the shares are issued without payment by the grantee. RSUs generally do not continue to vest after the recipient’s retirement date.
Under the 2000 Long-Term Incentive Plan, we may grant stock options, including incentive stock options, restricted stock and RSUs,
performance units and other stock-based awards. The plan provides for the issuance of 120,000,000 shares of TI common stock. In
addition, if any stock-based award under the 1996 Long-Term Incentive Plan terminates, any unissued shares subject to the terminated
award become available for grant under the 2000 Long-Term Incentive Plan. No more than 13,400,000 shares of common stock may be
awarded as restricted stock, RSUs or other stock-based awards (other than stock options) under the plan.
Under the 2003 Long-Term Incentive Plan, we may grant stock options (other than incentive stock options), restricted stock
and RSUs, performance units and other stock-based awards to non-management employees. The plan provides for the issuance of
240,000,000 shares of TI common stock. Executive officers and approximately 200 managers are ineligible to receive awards under
this plan.
Under our 2003 Director Compensation Plan, we may grant stock options, RSUs and other stock-based awards to non-employee
directors, as well as issue TI common stock upon the distribution of stock units credited to deferred-compensation accounts established
for such directors. The plan provides for the annual grant of a stock option to each non-employee director from January 2004 through
2010. For the years 2001 through 2006, each grant was an option to purchase 15,000 shares with an option price equal to fair market
value on the date of grant. Effective in 2007, the plan reduced the annual stock option grant to 7,000 shares and included an annual
grant of 2,500 RSUs to each non-employee director. Under the plan, we also make a one-time grant of 2,000 RSUs to each new non-
employee director of TI. The plan provides for the issuance of 2,000,000 shares of TI common stock.
Stock option and RSU transactions under the above-mentioned long-term incentive and director compensation plans (including
assumed stock options granted under the Burr-Brown and Radia Communications, Inc. plans) during 2008 were as follows:
Stock Options Restricted Stock Units
Shares
Weighted
Average Exercise
Price per Share Shares
Weighted
Average Grant-Date
Fair Value per Share
Outstanding grants, December 31, 2007 ............. 185,967,331 $ 30.78 7,711,407 $28.75
Granted ..................................... 8,490,032 29.72 3,609,689 29.09
Vested (RSUs) ................................ — — (628,500)32.05
Forfeited .................................... (3,286,978)35.35 (341,872)30.05
Exercised .................................... (8,705,307)17.25 — —
Outstanding grants, December 31, 2008 ........... 182,465,078 $31.29 10,350,724 $ 28.63