Page 41 - Demo samer flip book

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What immediately stands out is that equity investments dropped from $800 million to $265 million in 2003. This should encourage us to examine the footnotes to understand why.
The footnotes in the same annual report include the following:
During the third and fourth quarters of 2003, TI sold its remaining 57 million shares of Micron common stock, which were received in connection with TI's sale of its memory business unit to Micron in 1998. TI recognized pretax gains of $203 million from these sales, which were recorded in other income (expense) net....The combined effect of the after-tax gains and the tax benefit was an increase of $355 million to TI's 2003 net income.
We learn two things from this footnote: 1) TI sold its significant stake in Micron, and 2) that sale created a one-time (nonrecurring) boost in current profits of $355 million.
Goodwill
Goodwill is created when one company (the "buyer") purchases another company (the "target"). At the time of purchase, all of the assets and liabilities of the target company are re-appraised to their estimated fair value. This includes even intangible assets that were not formerly carried on the target's balance sheet, such as trademarks, licenses, in-process research & development, and maybe even key relationships. Basically, accountants try to estimate the value of the entire target company, including both tangible and intangible assets. If the buyer happens to pay more than this amount, every extra dollar falls into goodwill. Goodwill is a catch-all account, because there is nowhere else to put it. From the accountant's perspective, it is the amount the buyer "overpays" for the target.
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