Texas Instruments 2006 Annual Report Download - page 38

TEXAS INSTRUMENTS 2006 ANNUAL REPORT
3636
Venture Capital Commitments: We have investments in certain venture capital funds and have committed to provide additional
capital to those funds. As appropriate investments are entered into, the venture capital general partners may draw upon
those committed additional funds. As of December 31, 2006, we may be required to provide an additional $32 million when the
committed funds are called by the venture capital funds’ general partners.
Leases: We conduct certain operations in leased facilities and also lease a portion of our data processing and other
equipment. In addition, certain long-term supply agreements to purchase industrial gases are also accounted for as operating
leases. Lease agreements frequently include purchase and renewal provisions and require us to pay taxes, insurance and
maintenance costs. Rental and lease expense incurred was $125 million in 2006, $126 million in 2005 and $124 million in 2004.
Software Licenses: We have licenses for certain electronic design automation software that are accounted for in accordance
with Statement of Position 98-1. The related liabilities are apportioned between current liabilities (accounts payable) and long-
term liabilities (other liabilities) on the balance sheet.
Purchase Commitments: We have certain purchase commitments that are for normal usage, some of which contain provisions
for minimum payments.
Summary: At December 31, 2006, we were committed to make the following minimum payments under operating leases,
capitalized software licenses and purchase commitments:
Operating
Leases
Capitalized
Software
Licenses
Purchase
Commitments
2007 ........................................................................... $ 85 $ 33 $ 117
2008 ........................................................................... 57 21 93
2009 ........................................................................... 44 15 37
2010 ........................................................................... 38 8 5
2011 ........................................................................... 33 — 5
Thereafter ...................................................................... 162 — 61
Letters of Credit: At December 31, 2006, we had $63 million of unused documentary letters of credit to enable manufacturers of
certain products for the Education Technology segment to receive payment upon shipment to us.
Indemnification Guarantees: We routinely sell products with a limited intellectual property indemnification included in the
terms of sale. Historically, we have had only minimal and infrequent losses associated with these indemnities. Consequently,
any future liabilities resulting from the intellectual property indemnities cannot reasonably be estimated or accrued.
Warranty Costs/Product Liabilities: We accrue for known product-related claims if a loss is probable and can be reasonably
estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or
product liability, and historically we have experienced a low rate of payments on product claims. Consistent with general
industry practice, we enter formal contracts with certain customers in which the parties define warranty remedies. Typically,
our warranty for semiconductor products covers three years, an obligation to repair, replace or refund, and a maximum
payment obligation tied to the price paid for our products. In some cases, product claims may be disproportionate to the price
of our products.
General: We are subject to various legal and administrative proceedings. Although it is not possible to predict the outcome
of these matters, we believe that the results of these proceedings will not have a material adverse effect upon our financial
condition, results of operations or liquidity.
Discontinued Operations Indemnity: In connection with the sale of the former Sensors & Controls business, we have agreed
to indemnify Sensata for certain specified litigation matters, as well as other liabilities, including environmental liabilities. Our
indemnification obligations with respect to breaches of representations and warranties and the specified litigation matters
are, generally, subject to a total deductible of $30 million and our maximum potential exposure is limited to $300 million. There
were no significant liabilities recorded under these indemnification obligations.