Investor Presentaiton
Inventory valuation allowances
Inventory is valued net of allowances for unsalable or obsolete raw materials, work-in-process and finished goods. Statistical
allowances are determined quarterly for raw materials and work-in-process based on historical disposals of inventory for salability
and obsolescence reasons. For finished goods, quarterly statistical allowances are determined by comparing inventory levels of
individual parts to historical shipments, current backlog and estimated future sales in order to identify inventory judged unlikely to
be sold. A specific allowance for each material type will be carried if there is a significant event not captured by the statistical
allowance. Examples are an end-of-life part or demand with imminent risk of cancellation. Allowances are also calculated quarterly
for instances where inventoried costs for individual products are in excess of market prices for those products. Actual future write-
offs of inventory for salability and obsolescence reasons may differ from estimates and calculations used to determine valuation
allowances due to changes in customer demand, customer negotiations, technology shifts and other factors.
Changes in accounting standards
See Note 2 to the financial statements for information on new accounting standards.
Off-balance sheet arrangements
As of December 31, 2016, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K.
Commitments and contingencies
See Note 12 to the financial statements for a discussion of our commitments and contingencies.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Foreign exchange risk
The U.S. dollar is the functional currency for financial reporting. Our non-U.S. entities own assets or liabilities denominated in U.S.
dollars or other currencies. Exchange rate fluctuations can have a significant impact on taxable income in those jurisdictions, and
consequently on our effective tax rate.
Our balance sheet also reflects amounts remeasured from non-U.S. dollar currencies. Because most of the aggregate non-U.S.
dollar balance sheet exposure is hedged by forward currency exchange contracts, based on year-end 2016 balances and currency
exchange rates, a hypothetical 10 percent plus or minus fluctuation in non-U.S. currency exchange rates relative to the U.S. dollar
would result in a pre-tax currency exchange gain or loss of about $1 million.
We use these 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 2016, we had forward currency exchange contracts
outstanding with a notional value of $494 million to hedge net balance sheet exposures (including $158 million to sell Japanese
yen and $123 million to sell euros). Similar hedging activities existed at year-end 2015.
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, 2016, 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 $7 million and decrease the fair value of our long-term debt by
$104 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.
TEXAS INSTRUMENTS . 2016 FORM 10-K
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FORM 10-KView entire presentation