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TEXAS INSTRUMENTS 2007 ANNUAL REPORT 59
At December 31, 2007, we also had a series of forward currency exchange contracts denominated in Philippine pesos to hedge
specified forecasted transactions associated with the construction of a new assembly and test facility in the Philippines. These contracts
are primarily intended to protect against exchange rate fluctuations between the U.S. dollar and Philippine peso during the estimated
construction period. These contracts, which settle at various dates through January 2009, had an aggregate notional value of
$65 million to buy a total of 2.67 billion pesos.
Because most of the aggregate non-U.S. dollar balance sheet exposure is hedged by these forward currency exchange contracts, based
on year-end 2007 balances and rates, a hypothetical 10 percent plus or minus fluctuation in non-U.S. currency exchange rates would
result in a pretax currency exchange gain or loss of approximately $2 million.
Risks Associated with Cash and Short-term Investments
The primary objective of our cash equivalents and short-term investments is to preserve capital and maintain liquidity while generating
appropriate returns. Our investment policy allows for only high-credit-quality securities. We assess these securities at the time of
investment and review them periodically for any indications of changes in credit quality. The value and liquidity of these securities is
affected by market interest rates generally, the ability of the issuer to make principal and interest payments when due, and the normal
functioning of the markets in which these securities are sold (see Notes 3 and 17 to the Financial Statements for additional information).
Our cash equivalents are debt securities with original maturities equal to or less than three months. In general, these investments are
not subject to material interest rate risk because of their short duration to maturity. Our short-term investments are debt securities with
original maturities greater than three months. The fair values of certain short-term investments, because of their longer durations, can
vary more significantly due to interest rate fluctuations.
The effect of changes in interest rates on the fair value of our cash equivalents and short-term investments has not been material
during 2006 or 2007 due to the primarily short-term duration of our investments. A hypothetical increase or decrease of 100 basis
points in the applicable interest rates associated with these investments as of year-end 2007 would have resulted in a decrease of
approximately $12 million and an increase of approximately $11 million in the fair value of these securities, respectively. While an
increase in interest rates reduces the fair value of the investment portfolio, we will not recognize the losses in other income (expense)
net unless the individual securities are sold prior to recovery or the impairment is determined to be other-than-temporary.
Equity Risk
Equity and other long-term investments at year-end 2007 consisted of the following:
•฀Equity฀investments฀–฀includes marketable (publicly traded) and non-marketable (non-publicly traded) equity securities.
•฀Investments฀in฀venture฀capital฀funds฀–฀includes investments in limited partnerships (accounted for under either the equity or cost
methods).
•฀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.
Marketable equity investments are stated at fair value and changes in fair value are recorded through other comprehensive income.
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. 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 investment prices would not materially affect operating
results (see Note 4 to the Financial Statements for details of equity and other long-term investments).