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ANNUAL
REPORT
TEXAS INSTRUMENTS20 • 2012 ANNUAL REPORT
8. Financial instruments and risk concentration
Financial instruments
We hold derivative financial instruments such as forward foreign currency exchange contracts and interest rate swaps, the fair
value of which was not material as of December 31, 2012. Our forward foreign currency exchange contracts outstanding as of
December 31, 2012, had a notional value of $305 million to hedge our non-U.S. dollar net balance sheet exposures, including
$140 million to sell Japanese yen, $26 million to sell Chinese yuan and $26 million to sell British pound sterling.
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, which is described in Note 9. 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 the definition of Level 2 inputs.
Risk concentration
Financial instruments that could subject us to concentrations of credit risk are primarily cash, 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 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:
Accounts receivable allowances Balance at
Beginning of Year
Additions Charged
(Credited) to
Operating Results Recoveries and
Write-offs, Net Balance at
End of Year
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19 $12 $— $31
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1 — 19
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 (4) (1) 18
9. Valuation of debt and equity investments and certain liabilities
Debt and equity investments
We classify our investments as 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, broker quotes or, when
necessary, financial models (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. Changes in the fair value of debt securities classified as trading
securities are recorded in OI&E.
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.