Texas Instruments 2014 Annual Report Download - page 52

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FORM 10-K
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Financial instruments
We hold derivative financial instruments such as forward foreign currency exchange contracts, the fair value of which was not material
as of December 31, 2014. Our forward foreign currency exchange contracts outstanding as of December 31, 2014, had a notional value
of $504 million to hedge our non-U.S. dollar net balance sheet exposures, including $183 million to sell Japanese yen, $163 million
to sell euros and $29 million to sell British pound sterling. Prior to the second quarter of 2013, we also held interest rate swaps. See
Note 12 for more details.
Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our postretirement plan
assets and deferred compensation liabilities, are carried at fair value. The carrying values for other current financial assets and
liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. The
carrying value of our long-term debt approximates the fair value as measured using broker-dealer quotes, which are Level 2 inputs. See
Note 9 for a description of fair value and the definition of Level 2 inputs.
Risk concentration
We are subject to counterparty risk from financial institutions, customers and issuers of debt securities. Financial instruments that
could subject us to concentrations of credit risk are primarily cash deposits, cash equivalents, short-term investments and accounts
receivable. To manage our credit risk exposure, we place cash investments in investment-grade debt securities and limit the amount of
credit exposure to any one issuer. We also limit counterparties on cash deposits and financial derivative contracts to financial institutions
with investment-grade ratings.
Concentrations of credit risk with respect to accounts receivable are limited due to our large number of customers and their dispersion
across different industries and geographic areas. We maintain allowances for expected returns, disputes, adjustments, incentives and
collectability. These allowances are deducted from accounts receivable on our Consolidated Balance Sheets.
Details of these accounts receivable allowances are as follows:
2014 2013 2012
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22 $ 31 $ 19
Additions charged (credited) to operating results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9) (9) 12
Recoveries and write-offs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) — —
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12 $ 22 $ 31
Valuation of debt and equity investments and certain liabilities
Debt and equity investments
We classify our investments as either available for sale, trading, equity method or cost method. Most of our investments are classified as
available for sale.
Available-for-sale and trading securities are stated at fair value, which is generally based on market prices or broker quotes. See fair-
value discussion below. Unrealized gains and losses on available-for-sale securities are recorded as an increase or decrease, net of
taxes, in AOCI on our Consolidated Balance Sheets. We record other-than-temporary impairments on available-for-sale securities in OI&E
in our Consolidated Statements of Income.
We classify certain mutual funds as trading securities. These mutual funds hold a variety of debt and equity investments intended to
generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual
funds and the related deferred compensation liabilities in SG&A.
Our other investments are not measured at fair value but are accounted for using either the equity method or cost method. These
investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from
equity-method investments are reflected in OI&E based on our ownership share of the investee’s financial results. Gains and losses
on cost-method investments are recorded in OI&E when realized or when an impairment of the investment’s value is warranted based
on our assessment of the recoverability of each investment.
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