Texas Instruments 2006 Annual Report Download - page 19

TEXAS INSTRUMENTS 2006 ANNUAL REPORT 1717
governmental authority that are directly imposed on revenue-producing transactions between a seller and a customer, such
as sales, use, value-added and some excise taxes, on either a gross (included in revenue and costs) or a net (excluded from
revenue) basis. This standard will be effective for us in interim periods and fiscal years beginning after December 15, 2006.
We present these transactions on a net basis and, therefore, the adoption of this standard will have no impact on our financial
position and results of operations.
2. Discontinued Operations
In January 2006, we entered into an agreement to sell substantially all of the Sensors & Controls segment, excluding the RFID
systems operations, to an affiliate of Bain Capital, LLC, for $3 billion in cash. The sale was completed on April 27, 2006. The
former Sensors & Controls business acquired by Bain Capital, LLC was renamed Sensata Technologies (Sensata).
The results of operations of the former Sensors & Controls business are being presented as discontinued operations. The
following summarizes results of the discontinued operations for the years ended December 31, 2006, 2005 and 2004, included
in the consolidated statements of income:
2006 2005 2004
Net revenue ................................................................... $375 $ 1,057 $ 1,028
Operating costs and expenses ................................................... 327 825 779
Income from discontinued operations before income taxes ......................... 48 232 249
Provision for income taxes ...................................................... 19 81 79
Income from discontinued operations, net of income taxes ......................... 29 151 170
Gain on sale of discontinued operations .......................................... 2,554 — —
Provision for income taxes ...................................................... 880 — —
Gain on sale of discontinued operations, net of income taxes ....................... 1,674 — —
Total income from discontinued operations ....................................... $1,703 $151 $170
Income from discontinued operations per common share: (a)
Basic ....................................................................... $1.11 $ 0.09 $ 0.10
Diluted....................................................................... $1.09 $ 0.09 $ 0.10
(a) Earnings per share amounts from continuing and discontinued operations may not add to net income per share due to rounding.
As of December 31, 2006, the remaining assets of the former Sensors & Controls business, included in assets of discontinued
operations, are attributable to pension plans in our Japan subsidiary that are expected to be settled in 2007.
Continuing Involvement: Upon closing of the sales transaction, we entered into a Transition Services Agreement (TSA) with
Sensata to provide various temporary support services that are reasonably necessary to facilitate the continuation of the
normal conduct of business of the former Sensors & Controls business such as finance and accounting, human resources,
information technology, warehousing and logistics, and records retention and storage. Such services are expected to be
provided for up to twelve months from the closing date, although certain information technology-related services may be
provided for up to two years. The fees for these services are generally equivalent to our cost. In addition, we entered into
certain cross-license agreements to allow each party to continue to use the associated technology and intellectual property
in the conduct of their respective business. However, these cross-license agreements generally do not involve the receipt or
payment of any royalties and, therefore, are not considered to be a component of continuing involvement.
Although the services provided under the TSA generate continuing cash flows between us and Sensata, the amounts are not
considered to be significant to the ongoing operations of either entity. In addition, we have no contractual ability through the
TSA or any other agreement to significantly influence the operating or financial policies of Sensata. Under the provisions of
EITF Issue No. 03-13, “Applying the Conditions of Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report
Discontinued Operations,” we therefore have no significant continuing involvement in the operations of the former Sensors &
Controls business and have classified the historical results of that business as discontinued operations.