Texas Instruments 2012 Annual Report Download - page 12

ANNUAL
REPORT
TEXAS INSTRUMENTS10 • 2012 ANNUAL REPORT
Derivatives and hedging
In connection with the issuance of variable-rate long-term debt in May 2011, as more fully described in Note 12, we entered into an
interest rate swap designated as a hedge of the variability of cash flows related to interest payments. Gains and losses from changes in
the fair value of the interest rate swap are credited or charged to Accumulated other comprehensive income (loss), net of taxes (AOCI).
We also use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward
foreign currency exchange contracts that are used as economic hedges to reduce the earnings impact exchange rate fluctuations
may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward
foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency
derivative instruments.
We do not use derivatives for speculative or trading purposes.
Changes in accounting standards
As of December 31, 2012, the Financial Accounting Standards Board had issued several accounting standards that we have not yet
been required to adopt. None of these standards would have a material effect on our financial condition, results of operations or
financial disclosures.
2. Acquisition-related charges
National acquisition
On September 23, 2011, we completed the acquisition of National by acquiring all issued and outstanding common shares in exchange
for total consideration of $6.56 billion. We recognized $3.528 billion of goodwill, which was applied to the Analog segment. None of the
goodwill related to the National acquisition was deductible for tax purposes.
We incurred various costs as a result of the acquisition of National that are included in Other consistent with how management
measures the performance of its segments. These total acquisition-related charges are as follows:
For Years Ended
December 31,
2012 2011
Distributor contract termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21 $ —
Inventory related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —96
Property, plant and equipment related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —15
As recorded in COR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 111
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 87
Retention bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 46
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 50
Severance and other benefits:
Employment reductions announced at closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 29
Change of control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —41
Transaction and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 62
As recorded in Acquisition charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 315
Total acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $471 $426
In 2011, we discontinued using one of National’s distributors. We acquired the distributor’s inventory at fair value, resulting in an
incremental charge of $21 million to COR upon sale of the inventory in 2012.
At acquisition, we recognized costs associated with the adjustments to write up the value of acquired inventory and property, plant
and equipment to fair value. These costs are in addition to the normal expensing of the acquired assets based on their carrying or book
value prior to the acquisition. The total fair-value write-up of $96 million for the acquired inventory was expensed as that inventory
was sold. The total fair-value write-up for the acquired property, plant and equipment was $436 million. In the fourth quarter of 2011,
depreciation was $15 million. It continues at a declining rate and is no longer separately disclosed as an acquisition-related charge.