Texas Instruments Inc. (TXN)
Analysis of Revenues
Accounting Policy on Revenue Recognition
TI generates revenue primarily from the sale of semiconductor products, either directly to a customer or to a distributor, or at the conclusion of a consignment process. TI has a variety of types of contracts with the customers and distributors. In determining whether a contract exists, TI evaluates the terms of the arrangement, the relationship with the customer or distributor and their ability to pay.
TI recognizes revenue from sales of the products, including sales to the distributors, when control is transferred. Control is considered transferred when title and risk of loss pass, when the customer becomes obligated to pay and, where required, when the customer has accepted the products. This transfer generally occurs at a point in time upon shipment or delivery to the customer or distributor, depending upon the terms of the sales order. Payment for sales to customers and distributors is generally due on TI’s standard commercial terms. For sales to distributors, payment is not contingent upon resale of the products.
Revenue from sales of the products that are subject to inventory consignment agreements is recognized at a point in time, when the customer or distributor pulls product from consignment inventory that TI stores at designated locations. Transfer of control occurs at that point, when title and risk of loss transfers and the customer or distributor becomes obligated to pay for the products pulled from inventory. Until the products are pulled for use or sale by the customer or distributor, TI retains control over the products’ disposition, including the right to pull back or relocate the products.
The revenue recognized is adjusted based on allowances, which are prepared on a portfolio basis using a most likely amount methodology based on analysis of historical data and contractual terms. These allowances, which are not material, generally include adjustments for pricing arrangements, product returns and incentives. The length of time between invoicing and payment is not significant under any of TI’s payment terms. In instances where the timing of revenue recognition differs from the timing of invoicing, TI has determined the contracts generally do not include a significant financing component.
In addition, TI records allowances for accounts receivable that TI estimates may not be collected. TI monitors collectability of accounts receivable primarily through review of accounts receivable aging. When collection is at risk, TI assesses the impact on amounts recorded for bad debts and, if necessary, record a charge in the period such determination is made.
TI recognizes shipping fees, if any, received from customers in revenue. TI includes the related shipping and handling costs in cost of revenue. The majority of TI’s customers pay these fees directly to third parties.
Source: 10-K (filing date: 2019-02-22).
Revenues as Reported
Texas Instruments Inc., Income Statement, Revenues
US$ in millions
|12 months ended||Dec 31, 2018||Dec 31, 2017||Dec 31, 2016||Dec 31, 2015||Dec 31, 2014|
|Revenue||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||Texas Instruments Inc.’s revenue increased from 2016 to 2017 and from 2017 to 2018.|