Texas Instruments 2008 Annual Report Download - page 22

[ 20 ] TEXAS INSTRUMENTS 2008 ANNUAL REPORT
Proceeds from sales of these securities prior to their scheduled maturity were $1.76 billion, $2.12 billion and $5.34 billion in 2008,
2007 and 2006. Gross realized gains and losses from the sales of these securities were not significant for any periods presented.
9. Long-term investments
Details of long-term investments are as follows:
December 31,
2008 2007
Equity investments:
Marketable ........................................................................... $ — $ 7
Non-marketable........................................................................ 19 44
Venture capital funds:
Equity method ......................................................................... 53 65
Cost method .......................................................................... 33
Mutual funds ............................................................................. 96 148
Auction-rate securities ..................................................................... 482 —
Total ................................................................................... $653 $267
There were $9 million, $6 million and $6 million of gross realized gains and no gross realized losses from sales of long-term
investments in 2008, 2007 and 2006. Other-than-temporary declines and impairments in the values of long-term investments
recognized in OI&E were $10 million, $18 million and $8 million in 2008, 2007 and 2006.
Our long-term investments include auction-rate securities, which are debt instruments with variable interest rates that historically
would periodically reset through an auction process. As of December 31, 2008, we held $482 million ($535 million par value) of auction-
rate securities. The $53 million difference between fair value and par value is considered temporary and is recorded as an unrealized
loss, net of taxes, in AOCI. We have determined that our investments in auction-rate securities are not other-than-temporarily impaired,
as we have the ability and intent to hold these investments until their value can be recovered, which may include holding them to their
respective maturity dates.
Since mid-February 2008, conditions in global credit markets have caused the failure of auctions for most auction-rate securities,
including those we hold, because the amount of securities submitted for sale in those auctions exceeded the amount of bids. A failed
auction is not a default by the issuer of the security. When auctions are not successful, the interest rate moves to a maximum rate
defined for each security, and is generally reset periodically at a level higher than defined short-term interest benchmarks. To date, we
have collected all interest on all of our auction-rate securities when due, and we expect to continue to do so in the future. The principal
associated with failed auctions will not be accessible until successful auctions resume, a buyer is found outside of the auction process
or issuers use a different form of financing to replace these securities. Meanwhile, issuers continue to repay principal over time from
cash flows prior to final maturity, or make final payments when they come due according to contractual maturities ranging from 14 to
39 years. We understand that issuers and financial markets are working on alternatives that may improve liquidity, but it is not clear
when or to what extent such efforts will be successful. We expect that we will receive the principal associated with our auction-rate
securities through one of the means described above.
Since the failure of the auctions in February 2008, $36 million of our auction-rate securities have been redeemed by the issuers at
par. Of these redemptions, $15 million involved securities classified as Level 2 for purposes of determining fair value, with the remaining
$21 million classified as Level 3 (see Note 10).
As of December 31, 2008, $500 million par value of our auction-rate securities are backed by pools of student loans guaranteed by
the U.S. Department of Education and, based on this guarantee, we continue to believe that the credit quality of these securities is high.
As of December 31, 2008, these securities were all rated AAA/Aaa by the major credit rating agencies. The remaining $35 million par
value of our auction-rate securities are covered by bond insurance and were rated Aa3 by Moody’s as of December 31, 2008.
Subsequent to year end, $3 million of our auction-rate securities were redeemed at par in January 2009.
While our ability to liquidate our auction-rate investments is likely to be limited for some period of time, we do not believe this will
materially impact our ability to fund our working capital needs, capital expenditures, dividend payments or other business requirements.