Texas Instruments 2006 Annual Report Download - page 56

TEXAS INSTRUMENTS 2006 ANNUAL REPORT
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As part of our financial process, we must assess the likelihood that our deferred tax assets can be recovered. If recovery
is not likely, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the
deferred tax assets that are estimated not to be ultimately recoverable. In this process, certain relevant criteria are evaluated
including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior
carryback years that can be used to absorb net operating losses and credit carrybacks, and taxable income in future years.
Our judgment regarding future taxable income may change due to future market conditions, changes in U.S. or international
tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets and an
accompanying reduction or increase in net income in the period when such determinations are made.
In addition to the factors described above, the effective tax rate reflected in forward-looking statements is based on then
current tax law. Significant changes during the year in enacted tax law could affect these estimates.
Impairment of Long-lived Assets
We review long-lived assets for impairment when certain indicators are present that suggest the carrying amount may not
be recoverable. This review process primarily focuses on intangible assets from business acquisitions; property, plant and
equipment; and software for internal use or embedded in products sold to customers. Factors considered include the under-
performance of an asset compared to expectations and shortened useful lives due to planned changes in the use of the
assets. Recoverability is determined by comparing the carrying amount of long-lived assets to estimated future undiscounted
cash flows. If future undiscounted cash flows are less than the carrying amount of the long-lived assets, an impairment
charge would be recognized for the excess of the carrying amount over fair value determined by either a quoted market
price, if any, or a value determined by utilizing a discounted cash-flow technique. Additionally, in the case of assets that will
continue to be used in future periods, a shortened depreciable life may be utilized if appropriate, resulting in accelerated
amortization based upon the expected net realizable value of the asset at the date the asset will no longer be utilized. Actual
results may vary from estimates due to, among other things, differences in operating results, shorter asset useful lives and
lower market values for excess assets.
Changes in Accounting Standards
See Note 10 for a discussion of the impact of adopting SFAS 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” See Changes in Accounting
Standards in Note 1 to the Financial Statements for a discussion of other changes in accounting standards.
In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes—An
Interpretation of FASB Statement No. 109.” This Interpretation clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements. FIN 48 requires companies to determine that it is “more likely than not” that
a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be
recorded in the financial statements. It also provides guidance on the recognition, measurement and classification of income
tax uncertainties, along with any related interest and penalties. FIN 48 will also require significant additional disclosures. This
Interpretation will be effective for fiscal years beginning after December 15, 2006. We will implement this Interpretation in the
first quarter of 2007 on a prospective basis. We are currently evaluating the potential impact this Interpretation will have on
our financial position and results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which provides guidance on how to measure
assets and liabilities that use fair value. SFAS 157 will apply whenever another U.S. generally accepted accounting principles
standard requires or permits assets or liabilities to be measured at fair value. SFAS 157 does not expand the use of fair value
to any new circumstances. This standard will also require additional disclosures in both annual and quarterly reports. SFAS
157 will be effective for financial statements issued for fiscal years beginning after November 15, 2007, and will be adopted
by us beginning in the first quarter of 2008. We are currently evaluating the potential impact this standard will have on our
financial position and results of operations.
In September 2006, the SEC Staff issued Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 was issued in order
to eliminate the diversity of practice in how public companies quantify misstatements of financial statements, including
misstatements that were not material to prior years’ financial statements. We have adopted the provisions of SAB 108 for
the year ending December 31, 2006, and have determined it does not have an impact on our financial position and results of
operations for the period then ended.