txn-10q_20150930.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 September 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

1,014,412,071

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

October 28, 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 Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

$

 

3,429

 

 

$

 

3,501

 

 

$

 

9,811

 

 

$

 

9,776

 

Cost of revenue (COR)

 

 

1,432

 

 

 

 

1,457

 

 

 

 

4,117

 

 

 

 

4,244

 

Gross profit

 

 

1,997

 

 

 

 

2,044

 

 

 

 

5,694

 

 

 

 

5,532

 

Research and development (R&D)

 

 

316

 

 

 

 

332

 

 

 

 

974

 

 

 

 

1,047

 

Selling, general and administrative (SG&A)

 

 

434

 

 

 

 

463

 

 

 

 

1,343

 

 

 

 

1,414

 

Acquisition charges

 

 

83

 

 

 

 

83

 

 

 

 

248

 

 

 

 

248

 

Restructuring charges/other

 

 

 

 

 

 

(9

)

 

 

 

(3

)

 

 

 

(24

)

Operating profit

 

 

1,164

 

 

 

 

1,175

 

 

 

 

3,132

 

 

 

 

2,847

 

Other income (expense), net (OI&E)

 

 

6

 

 

 

 

3

 

 

 

 

13

 

 

 

 

12

 

Interest and debt expense

 

 

22

 

 

 

 

23

 

 

 

 

68

 

 

 

 

72

 

Income before income taxes

 

 

1,148

 

 

 

 

1,155

 

 

 

 

3,077

 

 

 

 

2,787

 

Provision for income taxes

 

 

350

 

 

 

 

329

 

 

 

 

927

 

 

 

 

791

 

Net income

$

 

798

 

 

$

 

826

 

 

$

 

2,150

 

 

$

 

1,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

 

.77

 

 

$

 

.77

 

 

$

 

2.05

 

 

$

 

1.84

 

Diluted

$

 

.76

 

 

$

 

.76

 

 

$

 

2.02

 

 

$

 

1.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

1,023

 

 

 

 

1,060

 

 

 

 

1,036

 

 

 

 

1,070

 

Diluted

 

 

1,035

 

 

 

 

1,074

 

 

 

 

1,049

 

 

 

 

1,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

 

.34

 

 

$

 

.30

 

 

$

 

1.02

 

 

$

 

.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

 

798

 

 

$

 

826

 

 

$

 

2,150

 

 

$

 

1,996

 

Income allocated to RSUs

 

 

(11

)

 

 

 

(13

)

 

 

 

(30

)

 

 

 

(31

)

Income allocated to common stock for diluted EPS

$

 

787

 

 

$

 

813

 

 

$

 

2,120

 

 

$

 

1,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Statements of Comprehensive Income

(Millions of dollars)

 

 

 

For Three Months Ended

 

 

For Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

$

 

798

 

 

$

 

826

 

 

$

 

2,150

 

 

$

 

1,996

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial gains (losses) of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

(33

)

 

 

 

28

 

 

 

 

(43

)

 

 

 

21

 

Recognized within Net income

 

 

13

 

 

 

 

17

 

 

 

 

40

 

 

 

 

38

 

Prior service cost of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

20

 

 

 

 

 

 

 

 

20

 

 

 

 

 

Recognized within Net income

 

 

 

 

 

 

(1

)

 

 

 

1

 

 

 

 

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized within Net income

 

 

1

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

Other comprehensive income (loss)

 

 

1

 

 

 

 

44

 

 

 

 

19

 

 

 

 

60

 

Total comprehensive income

$

 

799

 

 

$

 

870

 

 

$

 

2,169

 

 

$

 

2,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

1,133

 

 

$

 

1,199

 

Short-term investments

 

 

1,602

 

 

 

 

2,342

 

Accounts receivable, net of allowances of ($16) and ($12)

 

 

1,481

 

 

 

 

1,246

 

Raw materials

 

 

108

 

 

 

 

101

 

Work in process

 

 

913

 

 

 

 

896

 

Finished goods

 

 

750

 

 

 

 

787

 

Inventories

 

 

1,771

 

 

 

 

1,784

 

Deferred income taxes

 

 

357

 

 

 

 

347

 

Prepaid expenses and other current assets

 

 

945

 

 

 

 

850

 

Total current assets

 

 

7,289

 

 

 

 

7,768

 

Property, plant and equipment at cost

 

 

5,742

 

 

 

 

6,266

 

Accumulated depreciation

 

 

(3,113

)

 

 

 

(3,426

)

Property, plant and equipment, net

 

 

2,629

 

 

 

 

2,840

 

Long-term investments

 

 

216

 

 

 

 

224

 

Goodwill, net

 

 

4,362

 

 

 

 

4,362

 

Acquisition-related intangibles, net

 

 

1,662

 

 

 

 

1,902

 

Deferred income taxes

 

 

160

 

 

 

 

172

 

Capitalized software licenses, net

 

 

54

 

 

 

 

83

 

Overfunded retirement plans

 

 

76

 

 

 

 

127

 

Other assets

 

 

92

 

 

 

 

244

 

Total assets

$

 

16,540

 

 

$

 

17,722

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

 

1,000

 

 

$

 

1,001

 

Accounts payable

 

 

367

 

 

 

 

437

 

Accrued compensation

 

 

615

 

 

 

 

651

 

Income taxes payable

 

 

84

 

 

 

 

71

 

Deferred income taxes

 

 

3

 

 

 

 

4

 

Accrued expenses and other liabilities

 

 

431

 

 

 

 

498

 

Total current liabilities

 

 

2,500

 

 

 

 

2,662

 

Long-term debt

 

 

3,132

 

 

 

 

3,641

 

Underfunded retirement plans

 

 

247

 

 

 

 

225

 

Deferred income taxes

 

 

308

 

 

 

 

399

 

Deferred credits and other liabilities

 

 

383

 

 

 

 

405

 

Total liabilities

 

 

6,570

 

 

 

 

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

 

 

1,562

 

 

 

 

1,368

 

Retained earnings

 

 

30,731

 

 

 

 

29,653

 

Treasury common stock at cost

 

 

 

 

 

 

 

 

 

Shares: September 30, 2015 – 721,186,352; December 31, 2014 – 694,189,127

 

 

(23,551

)

 

 

 

(21,840

)

Accumulated other comprehensive income (loss), net of taxes (AOCI)

 

 

(513

)

 

 

 

(532

)

Total stockholders’ equity

 

 

9,970

 

 

 

 

10,390

 

Total liabilities and stockholders’ equity

$

 

16,540

 

 

$

 

17,722

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

4


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Millions of dollars)

 

 

For Nine Months Ended

 

 

September 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net income

$

 

2,150

 

 

$

 

1,996

 

Adjustments to Net income:

 

 

 

 

 

 

 

 

 

Depreciation

 

 

594

 

 

 

 

639

 

Amortization of acquisition-related intangibles

 

 

240

 

 

 

 

241

 

Amortization of capitalized software

 

 

38

 

 

 

 

45

 

Stock-based compensation

 

 

228

 

 

 

 

217

 

Gains on sales of assets

 

 

(3

)

 

 

 

(44

)

Deferred income taxes

 

 

(106

)

 

 

 

(84

)

Increase (decrease) from changes in:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(241

)

 

 

 

(272

)

Inventories

 

 

13

 

 

 

 

(20

)

Prepaid expenses and other current assets

 

 

89

 

 

 

 

81

 

Accounts payable and accrued expenses

 

 

(190

)

 

 

 

(224

)

Accrued compensation

 

 

(37

)

 

 

 

51

 

Income taxes payable

 

 

21

 

 

 

 

(90

)

Changes in funded status of retirement plans

 

 

65

 

 

 

 

73

 

Other

 

 

(23

)

 

 

 

11

 

Cash flows from operating activities

 

 

2,838

 

 

 

 

2,620

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(387

)

 

 

 

(260

)

Proceeds from asset sales

 

 

10

 

 

 

 

46

 

Purchases of short-term investments

 

 

(1,713

)

 

 

 

(2,170

)

Proceeds from short-term investments

 

 

2,455

 

 

 

 

2,491

 

Other

 

 

8

 

 

 

 

7

 

Cash flows from investing activities

 

 

373

 

 

 

 

114

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

498

 

 

 

 

498

 

Repayment of debt

 

 

(1,000

)

 

 

 

(1,000

)

Dividends paid

 

 

(1,058

)

 

 

 

(967

)

Stock repurchases

 

 

(2,114

)

 

 

 

(2,133

)

Proceeds from common stock transactions

 

 

332

 

 

 

 

476

 

Excess tax benefit from share-based payments

 

 

68

 

 

 

 

75

 

Other

 

 

(3

)

 

 

 

(4

)

Cash flows from financing activities

 

 

(3,277

)

 

 

 

(3,055

)

 

 

 

 

 

 

 

 

 

 

Net change in Cash and cash equivalents

 

 

(66

)

 

 

 

(321

)

Cash and cash equivalents at beginning of period

 

 

1,199

 

 

 

 

1,627

 

Cash and cash equivalents at end of period

$

 

1,133

 

 

$

 

1,306

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

5


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 Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analog

$

 

2,182

 

 

$

 

2,149

 

 

$

 

6,266

 

 

$

 

5,981

 

Embedded Processing

 

 

725

 

 

 

 

711

 

 

 

 

2,087

 

 

 

 

2,070

 

Other

 

 

522

 

 

 

 

641

 

 

 

 

1,458

 

 

 

 

1,725

 

Total revenue

$

 

3,429

 

 

$

 

3,501

 

 

$

 

9,811

 

 

$

 

9,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analog

$

 

812

 

 

$

 

802

 

 

$

 

2,261

 

 

$

 

1,964

 

Embedded Processing

 

 

174

 

 

 

 

114

 

 

 

 

432

 

 

 

 

270

 

Other

 

 

178

 

 

 

 

259

 

 

 

 

439

 

 

 

 

613

 

Total operating profit

$

 

1,164

 

 

$

 

1,175

 

 

$

 

3,132

 

 

$

 

2,847

 

 

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 September 30, 2015 and 2014, and the Consolidated Balance Sheet as of September 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 nine-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.

 

6


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 September 30,

 

 

2015

 

 

2014

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

798

 

 

 

 

 

 

 

 

 

 

 

$

 

826

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for basic EPS calculation

$

 

787

 

 

 

1,023

 

 

$

 

.77

 

 

$

 

813

 

 

 

1,060

 

 

$

 

.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

798

 

 

 

 

 

 

 

 

 

 

 

$

 

826

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock