Edgar Filing: TEXAS INSTRUMENTS INC

txn-10q_20150630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-03761

TEXAS INSTRUMENTS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)




Delaware	75-0289970
(State of Incorporation)	(I.R.S. Employer Identification No.)




12500 TI Boulevard, Dallas, Texas	75243
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code 214-479-3773

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

1,026,385,794

Number of shares of Registrant’s common stock outstanding as of

July 27, 2015

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Consolidated Statements of Income

(Millions of dollars, except share and per-share amounts)

	For Three Months Ended						For Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenue	$	3,232		$	3,292		$	6,382		$	6,275
Cost of revenue (COR)		1,351			1,411			2,685			2,787
Gross profit		1,881			1,881			3,697			3,488
Research and development (R&D)		320			349			658			715
Selling, general and administrative (SG&A)		470			472			909			951
Acquisition charges		82			82			165			165
Restructuring charges/other		(1	)		(4	)		(3	)		(15	)
Operating profit		1,010			982			1,968			1,672
Other income (expense), net (OI&E)		3			3			7			9
Interest and debt expense		24			24			46			49
Income before income taxes		989			961			1,929			1,632
Provision for income taxes		293			278			577			462
Net income	$	696		$	683		$	1,352		$	1,170

Earnings per common share (EPS):
Basic	$	.66		$	.63		$	1.28		$	1.07
Diluted	$	.65		$	.62		$	1.26		$	1.06

Average shares outstanding (millions):
Basic		1,038			1,071			1,042			1,076
Diluted		1,051			1,086			1,056			1,091

Cash dividends declared per common share	$	.34		$	.30		$	.68		$	.60

As a result of accounting rule ASC 260, which requires a portion of Net income to be allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents, diluted EPS is calculated using the following:

Net income	$	696		$	683		$	1,352		$	1,170
Income allocated to RSUs		(10	)		(10	)		(19	)		(18	)
Income allocated to common stock for diluted EPS	$	686		$	673		$	1,333		$	1,152

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Millions of dollars)

	For Three Months Ended					For Six Months Ended
	June 30,					June 30,
	2015		2014			2015			2014
Net income	$	696	$	683		$	1,352		$	1,170
Other comprehensive income (loss), net of taxes:
Net actuarial gains (losses) of defined benefit plans:
Adjustments		—		(5	)		(10	)		(7	)
Recognized within Net income		17		11			27			21
Prior service cost of defined benefit plans:
Recognized within Net income		—		1			1			1
Derivative instruments:
Recognized within Net income		—		1			—			1
Other comprehensive income (loss)		17		8			18			16
Total comprehensive income	$	713	$	691		$	1,370		$	1,186

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

	June 30,			December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	1,184		$	1,199
Short-term investments		2,122			2,342
Accounts receivable, net of allowances of ($17) and ($12)		1,434			1,246
Raw materials		112			101
Work in process		940			896
Finished goods		833			787
Inventories		1,885			1,784
Deferred income taxes		347			347
Prepaid expenses and other current assets		1,088			850
Total current assets		8,060			7,768
Property, plant and equipment at cost		6,097			6,266
Accumulated depreciation		(3,412	)		(3,426	)
Property, plant and equipment, net		2,685			2,840
Long-term investments		228			224
Goodwill, net		4,362			4,362
Acquisition-related intangibles, net		1,742			1,902
Deferred income taxes		169			172
Capitalized software licenses, net		63			83
Overfunded retirement plans		127			127
Other assets		96			244
Total assets	$	17,532		$	17,722

Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	1,750		$	1,001
Accounts payable		417			437
Accrued compensation		481			651
Income taxes payable		117			71
Deferred income taxes		3			4
Accrued expenses and other liabilities		425			498
Total current liabilities		3,193			2,662
Long-term debt		3,134			3,641
Underfunded retirement plans		254			225
Deferred income taxes		355			399
Deferred credits and other liabilities		391			405
Total liabilities		7,327			7,332
Stockholders’ equity:
Preferred stock, $25 par value. Authorized – 10,000,000 shares.
Participating cumulative preferred. None issued.		—			—
Common stock, $1 par value. Authorized – 2,400,000,000 shares.
Shares issued – 1,740,815,939		1,741			1,741
Paid-in capital		1,504			1,368
Retained earnings		30,286			29,653
Treasury common stock at cost.
Shares: June 30, 2015 – 706,714,155; December 31, 2014 – 694,189,127		(22,812	)		(21,840	)
Accumulated other comprehensive income (loss), net of taxes (AOCI)		(514	)		(532	)
Total stockholders’ equity		10,205			10,390
Total liabilities and stockholders’ equity	$	17,532		$	17,722

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

	For Six Months Ended
	June 30,
	2015			2014
Cash flows from operating activities
Net income	$	1,352		$	1,170
Adjustments to Net income:
Depreciation		401			426
Amortization of acquisition-related intangibles		160			161
Amortization of capitalized software		26			30
Stock-based compensation		162			155
Gains on sales of assets		(3	)		(39	)
Deferred income taxes		(56	)		(57	)
Increase (decrease) from changes in:
Accounts receivable		(194	)		(314	)
Inventories		(101	)		(13	)
Prepaid expenses and other current assets		49			(15	)
Accounts payable and accrued expenses		(142	)		(176	)
Accrued compensation		(169	)		(76	)
Income taxes payable		(78	)		(48	)
Changes in funded status of retirement plans		41			41
Other		(19	)		(8	)
Cash flows from operating activities		1,429			1,237

Cash flows from investing activities
Capital expenditures		(248	)		(157	)
Proceeds from asset sales		10			40
Purchases of short-term investments		(1,254	)		(1,466	)
Proceeds from short-term investments		1,475			2,079
Other		1			1
Cash flows from investing activities		(16	)		497

Cash flows from financing activities
Proceeds from issuance of long-term debt		498			498
Repayment of debt		(250	)		(1,000	)
Dividends paid		(710	)		(648	)
Stock repurchases		(1,324	)		(1,463	)
Proceeds from common stock transactions		297			408
Excess tax benefit from share-based payments		64			64
Other		(3	)		(4	)
Cash flows from financing activities		(1,428	)		(2,145	)

Net change in Cash and cash equivalents		(15	)		(411	)
Cash and cash equivalents at beginning of period		1,199			1,627
Cash and cash equivalents at end of period	$	1,184		$	1,216

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Notes to financial statements

1. Description of business, including segment information

We design, make and sell semiconductors to electronics designers and manufacturers all over the world. We have two reportable segments, which are established along major categories of products as follows:

·	Analog – consists of the following product lines: High Volume Analog & Logic; Power Management; High Performance Analog; and Silicon Valley Analog, which consists primarily of products that we acquired through our purchase of National Semiconductor Corporation (National) in 2011.

·	Embedded Processing – consists of the following product lines: Processors, Microcontrollers and Connectivity.

We report the results of our remaining business activities in Other.

Segment information

	For Three Months Ended				For Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Revenue:
Analog	$	2,049	$	1,995	$	4,084	$	3,832
Embedded Processing		690		703		1,362		1,359
Other		493		594		936		1,084
Total revenue	$	3,232	$	3,292	$	6,382	$	6,275

Operating profit:
Analog	$	728	$	664	$	1,449	$	1,162
Embedded Processing		135		104		258		156
Other		147		214		261		354
Total operating profit	$	1,010	$	982	$	1,968	$	1,672

We use centralized manufacturing and support organizations, such as facilities, procurement and logistics, to provide support to our operating segments. Costs incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided.

2. Basis of presentation and significant accounting policies and practices

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2014. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended June 30, 2015 and 2014, and the Consolidated Balance Sheet as of June 30, 2015, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Because the consolidated interim financial statements do not include all of the information and notes required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2014. The results for the three- and six-month periods are not necessarily indicative of a full year’s results.

The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per-share amounts, are stated in millions of U.S. dollars unless otherwise indicated.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Significant accounting policies and practices

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.

Computation and reconciliation of earnings per common share are as follows (shares in millions):

	For Three Months Ended June 30,
	2015							2014
	Net							Net
	Income			Shares		EPS		Income			Shares		EPS
Basic EPS:
Net income	$	696						$	683
Income allocated to RSUs		(10	)						(10	)
Income allocated to common stock
for basic EPS calculation	$	686			1,038	$	.66	$	673			1,071	$	.63

Adjustment for dilutive shares:
Stock-based compensation plans					13							15

Diluted EPS:
Net income	$	696						$	683
Income allocated to RSUs		(10	)						(10	)
Income allocated to common stock
for diluted EPS calculation	$	686			1,051	$	.65	$	673			1,086	$	.62

	For Six Months Ended June 30,
	2015														2014
	Net														Net