Texas Instruments 2008 Annual Report Download - page 30

[ 28 ] TEXAS INSTRUMENTS 2008 ANNUAL REPORT
Assumed health care cost trend rates for the U.S. retiree health care plan at December 31:
U.S. Retiree Health Care
2008 2007
Assumed health care cost trend rate for next year:
Attributed to less than age 65 ...................................................... 8.5% 9.0%
Attributed to age 65 or greater ..................................................... 8.5% 9.0%
Ultimate trend rate ................................................................. 5.0% 5.0%
Year in which ultimate trend rate is reached:
Attributed to less than age 65 ...................................................... 2016 2016
Attributed to age 65 or greater ..................................................... 2016 2016
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 healthcare plan at December 31, 2008, by approximately $15 million and the
service cost and interest cost components of 2008 plan expense by $1 million.
Deferred compensation arrangements
We have a non-qualified deferred compensation plan, which allows certain highly compensated employees to defer receipt of a portion
of their cash compensation. Payments under this plan are made based on the participant’s distribution election and plan balance.
Participants can earn a return on their deferred compensation based on hypothetical investments in the same investment funds and TI
common stock that are offered in our defined contribution plans. Changes in the market value of the participant deferrals and earnings
thereon are reflected as an adjustment to the liability for deferred compensation with an offset to compensation expense.
As of December 31, 2008, our liability to participants of the deferred compensation plan was $138 million and is recorded in
deferred credits and other 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 changes in market values of this liability, 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 (see
Note 10).
Because no shares of TI common stock are actually held for the account of participants, as of December 31, 2008, we have a
forward purchase contract with a commercial bank to acquire 430,000 shares of TI common stock at a fixed price of $18.85 per
share at the end of the contract term or, at our option, to settle in cash with the bank. We can 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 amount of their balances into TI common stock, so this hedge will remain at or below
430,000 shares of TI common stock in the future.
13. Debt and lines of credit
On April 2, 2007, we retired $43 million of 8.75% notes at maturity. As of December 31, 2008 and 2007, we had no outstanding debt.
We maintain lines of credit to support commercial paper borrowings, if any, and to provide additional liquidity through bank loans. As
of December 31, 2008, we had a revolving credit facility under which a group of banks has committed $1 billion through August 2011,
and $920 million thereafter through August 2012. This facility would carry a variable rate of interest indexed to the London Interbank
Offered Rate (LIBOR), if drawn. Our Japan subsidiary also has a revolving credit facility for an additional $175 million with a group of
banks that would carry a variable rate of interest indexed to LIBOR, if drawn. At December 31, 2008 and 2007, both revolving credit
facilities were undrawn, and no commercial paper was outstanding.
Interest incurred on loans in 2008, 2007 and 2006 was zero, $1 million and $12 million. Of these amounts, $5 million in 2006 was
capitalized as a component of capital asset construction costs.