Texas Instruments 2012 Annual Report Download - page 10

ANNUAL
REPORT
TEXAS INSTRUMENTS8 • 2012 ANNUAL REPORT
We determine the amount and timing of royalty revenue based on our contractual agreements with intellectual property licensees.
We recognize royalty revenue when earned under the terms of the agreements and when we consider realization of payment to be
probable. Where royalties are based on a percentage of licensee sales of royalty-bearing products, we recognize royalty revenue by
applying this percentage to our estimate of applicable licensee sales. We base this estimate on historical experience and an analysis of
each licensee’s sales results. Where royalties are based on fixed payment amounts, we recognize royalty revenue ratably over the term
of the royalty agreement. Where warranted, revenue from licensees may be recognized on a cash basis.
We include shipping and handling costs in COR.
Advertising costs
We expense advertising and other promotional costs as incurred. This expense was $46 million in 2012, $43 million in 2011 and
$44 million in 2010.
Income taxes
We account for income taxes using an asset and liability approach. We record the amount of taxes payable or refundable for the
current year and the deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial
statements or tax returns. We record a valuation allowance when it is more likely than not that some or all of the deferred tax assets will
not be realized.
Other assessed taxes
Some transactions require us to collect taxes such as sales, value-added and excise taxes from our customers. These transactions are
presented in our statements of income on a net (excluded from revenue) basis.
Earnings per share (EPS)
Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock units
(RSUs), are considered to be participating securities and the two-class method is used for purposes of calculating EPS. Under the
two-class method, a portion of net income is allocated to these participating securities and, therefore, is excluded from the calculation
of EPS allocated to common stock, as shown in the table below.
Computation and reconciliation of earnings per common share are as follows (shares in millions):
2012 2011 2010
Net Income Shares EPS Net Income Shares EPS Net Income Shares EPS
Basic EPS:
Net income . . . . . . . . . . . . . . . . . . . $1,759 $2,236 $ 3,228
Less income allocated to RSUs . . . . . . . . . (31) (35) (44)
Income allocated to common stock for basic
EPS calculation . . . . . . . . . . . . . . . $1,728 1,132 $1.53 $2,201 1,151 $1.91 $ 3,184 1,199 $2.66
Adjustment for dilutive shares:
Stock-based compensation plans . . . . . 14 20 14
Diluted EPS:
Net income . . . . . . . . . . . . . . . . . . . $1,759 $2,236 $ 3,228
Less income allocated to RSUs . . . . . . . . . (31) (34) (44)
Income allocated to common stock for diluted
EPS calculation . . . . . . . . . . . . . . . $1,728 1,146 $1.51 $2,202 1,171 $1.88 $ 3,184 1,213 $2.62
Potentially dilutive securities representing 52 million, 24 million and 66 million shares of common stock that were outstanding during
2012, 2011 and 2010, respectively, were excluded from the computation of diluted earnings per common share for these periods
because their effect would have been anti-dilutive.