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ACCOUNTING POLICIES AND PRACTICES |
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Effective for the year, as well as the three months ended December 31, 1997, the company adopted SFAS No. 128, which requires disclosure of two new earnings per share amounts and elimination of prior earnings per share amounts, all on a retroactive basis. The two new amounts are as follows: Diluted earnings per share, whose calculation includes not only average outstanding common shares but also the impact of dilutive potential common shares such as outstanding common stock options. Basic earnings per share, which includes the effect of outstanding common shares but excludes dilutive potential common shares. Of the two, the company believes diluted earnings per share to be the most meaningful due to the inclusion of potential shares. Also, effective for the year ended December 31, 1997, the company adopted SFAS No. 131, which requires a new basis of determining reportable business segments, i.e., the management approach. This approach (as contrasted with the prior requirement which utilized a specified classification system for determining segments) designates the company’s internal organization as used by management for making operating decisions and assessing performance as the source of business segments. On this basis, the company has three principal businesses and, therefore, three reportable business segments: Semiconductor, Materials & Controls, and Education Technology. Segment results, as well as selected geographic data, are presented on this new basis in 1997, as well as retroactively. Neither of these two new accounting pronouncements altered reported net income. Another new standard, SFAS No. 130, will be adopted in first quarter, 1998. It will require disclosure of total nonowner changes in stockholders’ equity, which is defined as net income plus direct adjustments to stockholders’ equity such as equity and cash investment adjustments and pension liability adjustments. This disclosure will have no effect on reported net income. The consolidated financial statements include the accounts of all subsidiaries. The preparation of financial statements requires the use of estimates from which final results may vary. Intercompany balances and transactions have been eliminated. The U.S. dollar is the functional currency for financial reporting. With regard to accounts recorded in currencies other than U.S. dollars, current assets (except inventories), deferred income taxes, other assets, current liabilities and long-term liabilities are remeasured at exchange rates in effect at year end. Inventories, property, plant and equipment and depreciation thereon are remeasured at historic exchange rates. Revenue and expense accounts other than depreciation for each month are remeasured at the appropriate month-end rate of exchange. Net currency exchange gains and losses from remeasurement and forward currency exchange contracts to hedge net balance sheet exposures are charged or credited on a current basis to other income (expense) net. Gains and losses from forward currency exchange contracts to hedge specific transactions are deferred and included in the measurement of the related transactions. Gains and losses from interest rate swaps are included on the accrual basis in interest expense. Gains and losses from terminated forward currency exchange contracts and interest rate swaps are deferred and recognized consistent with the terms of the underlying transaction. As discussed in the Discontinued Operations footnote, the consolidated financial statements have been restated to classify TI’s Defense Systems and Electronics business as discontinued operations. This business was sold on July 11, 1997. Inventories are stated at the lower of cost or estimated realizable value. Cost is generally computed on a currently adjusted standard (which approximates current average costs) or average basis. Revenues are generally recognized as products are shipped. Royalty revenue is recognized by the company upon fulfillment of its contractual obligations and determination of a fixed royalty amount, or, in the case of ongoing royalties, upon sale by the licensee of royalty-bearing products, as estimated by the company. Depreciation is computed by either the declining-balance method (primarily 150 percent declining method) or the sum-of-the-years-digits method. Fully depreciated assets are written off against accumulated depreciation. Advertising costs are expensed as incurred. Advertising expense was $128 million in 1997, $124 million in 1996 and $131 million in 1995. Share amounts have been retroactively adjusted for the two-for-one stock split in 1997. Computation of earnings per common share (EPS) amounts for income (loss) from continuing operations before extraordinary item are as follows (millions, except per-share amounts): |
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| 1997 | 1996 | 1995 | ||||||||||||||||
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| Income | Shares | EPS | Loss | Shares | EPS | Income | Shares | EPS | ||||||||||
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| Basic EPS | $ 302 | 385.1 | $ .78 | $ (46) | 379.4 | $ (.12) | $ 996 | 375.3 | $ 2.65 | |||||||||
Dilutives: |
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| Stock options/ compensation plans |
-- | 9.3 | -- | -- | -- | 6.3 | ||||||||||||
| Convertible debentures |
-- | 3.3 | -- | -- | 2 | 5.7 | ||||||||||||
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| Diluted EPS | $ 302 | 397.7 | $ .76 | $ (46) | 379.4 | $ (.12) | $ 998 | 387.3 | $ 2.58 | |||||||||
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The EPS computation for 1996 excludes 4.8 million shares for stock options/compensation plans and 5.0 million shares for convertible debentures because their effect would have been antidilutive. | ||||||||||||||||||
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