Texas Instruments 2014 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2014 Texas Instruments annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132



FORM 10-K
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign exchange risk
The U.S. dollar is the functional currency for financial reporting. Our non-U.S. entities own assets or liabilities denominated in U.S.
dollars or other currencies. Exchange rate fluctuations can have a significant impact on taxable income in those jurisdictions, and
consequently on our effective tax rate.
Our balance sheet also reflects amounts remeasured from non-U.S. dollar currencies. Because most of the aggregate non-U.S. dollar
balance sheet exposure is hedged by forward currency exchange contracts, based on year-end 2014 balances and currency exchange
rates, a hypothetical 10 percent plus or minus fluctuation in non-U.S. currency exchange rates would result in a pre-tax currency
exchange gain or loss of less than $1 million.
We use these forward currency exchange contracts to reduce the earnings impact exchange rate fluctuations may have on our non-U.S.
dollar net balance sheet exposures. For example, at year-end 2014, we had forward currency exchange contracts outstanding with a
notional value of $504 million to hedge net balance sheet exposures (including $183 million to sell Japanese yen, $163 million to sell
euros and $29 million to sell British pound sterling). Similar hedging activities existed at year-end 2013.
Interest rate risk
We have the following potential exposure to changes in interest rates: (1) the effect of changes in interest rates on the fair value of our
investments in cash equivalents and short-term investments, which could produce a gain or a loss; and (2) the effect of changes in
interest rates on the fair value of our debt.
As of December 31, 2014, a hypothetical 100 basis point increase in interest rates would decrease the fair value of our investments in
cash equivalents and short-term investments by $12 million and decrease the fair value of our long-term debt by $128 million. Because
interest rates on our long-term debt are fixed, changes in interest rates would not affect the cash flows associated with long-term debt.
Equity risk
Long-term investments at year-end 2014 include the following:
•฀ Investments in mutual funds – includes mutual funds that were selected to generate returns that offset changes in certain
liabilities related to deferred compensation arrangements. The mutual funds hold a variety of debt and equity investments.
•฀ Investments in venture capital funds – includes investments in limited partnerships (accounted for under either the equity or cost
method).
•฀ Equity investments – includes non-marketable (non-publicly traded) equity securities.
Investments in mutual funds are stated at fair value. Changes in prices of the mutual fund investments are expected to offset related
changes in deferred compensation liabilities such that a 10 percent increase or decrease in the investments’ fair values would not
materially affect operating results. Non-marketable equity securities and some venture capital funds are stated at cost. Impairments
deemed to be other-than-temporary are expensed in Net income. Investments in the remaining venture capital funds are stated using
the equity method. See Note 9 to the financial statements for details of equity and other long-term investments.