Texas Instruments 2013 Annual Report Download - page 52

Download and view the complete annual report

Please find page 52 of the 2013 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 124

  • 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

TEXAS INSTRUMENTS50 • 2013 ANNUAL REPORT
ANNUAL
REPORT
We use 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 2013, we had forward currency exchange contracts outstanding with a
notional value of $459 million to hedge net balance sheet exposures (including $211 million to sell Japanese yen, $120 million to sell
euros and $33 million to sell British pound sterling). Similar hedging activities existed at year-end 2012.
Because most of the aggregate non-U.S. dollar balance sheet exposure is hedged by these forward currency exchange contracts,
based on year-end 2013 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 approximately $4 million.
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, 2013, 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 $9 million and decrease the fair value of our long-term debt by $147 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 2013 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.