Texas Instruments 2015 Annual Report Download - page 39

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FORM 10-K
We may also provide distributors an allowance to scrap certain slow-selling or obsolete products in their inventory, estimated as a
negotiated fixed percentage of each distributor’s purchases from us. In addition, if we publish a new price for a product that is lower
than that paid by distributors for the same product still remaining in each distributor’s on-hand inventory, we may credit them for the
difference between those prices. The allowance for this type of credit is based on the identified product price difference applied to our
estimate of each distributor’s on-hand inventory of that product.
We believe we can reasonably and reliably estimate allowances for credits to distributors in a timely manner.
Revenue from sales of our products that are subject to inventory consignment agreements, including consignment arrangements with
distributors, is recognized in accordance with the principles discussed above, but delivery occurs when the customer or distributor pulls
product from consignment inventory that we store at designated locations. About 60 percent of our distributor revenue is generated
from sales of consigned inventory. The allowances we record against this revenue are not material.
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.
In addition, we record allowances for accounts receivable that we estimate may not be collected. We monitor collectability of accounts
receivable primarily through review of the accounts receivable aging. When collection is at risk, we assess the impact on amounts
recorded for bad debts and, if necessary, will record a charge in the period such determination is made.
We recognize shipping fees received from customers in revenue, and we include the shipping and handling costs in COR.
Advertising costs
We expense advertising and other promotional costs as incurred. This expense was $45 million in 2014, $46 million in 2013 and $46
million in 2012.
Restructuring charges
Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs
due to exit activities. We recognize voluntary termination benefits when the employee accepts the offered benefit arrangement. We
recognize involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit
arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts
are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees.
Restructuring activities associated with assets are recorded as an adjustment to the basis of the asset, not as a liability. When we
commit to a plan to abandon a long-lived asset before the end of its previously estimated useful life, we accelerate the recognition of
depreciation to reflect the use of the asset over its shortened useful life. When an asset is held to be sold, we write down the carrying
value to its net realizable value and cease depreciation. Restructuring actions may be viewed as an impairment indicator requiring
testing of the recoverability of intangible assets, including goodwill.
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 Consolidated Statements of Income on a net (excluded from revenue) basis.
Earnings per share (EPS)
Unvested share-based payment awards that contain non-forfeitable 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.