Edgar Filing: TEXAS INSTRUMENTS INC

txn-10q_20160930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2016

☐	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 ☒ 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 ☒ 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	☒		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 ☒

999,485,728

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

October 26, 2016

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

	For Three Months Ended						For Nine Months Ended
Consolidated Statements of Income	September 30,						September 30,
(Millions of dollars, except share and per-share amounts)	2016			2015			2016			2015
Revenue	$	3,675		$	3,429		$	9,956		$	9,811
Cost of revenue (COR)		1,395			1,432			3,849			4,117
Gross profit		2,280			1,997			6,107			5,694
Research and development (R&D)		356			316			1,027			974
Selling, general and administrative (SG&A)		448			434			1,356			1,343
Acquisition charges		80			83			239			248
Restructuring charges/other		1			—			5			(3	)
Operating profit		1,395			1,164			3,480			3,132
Other income (expense), net (OI&E)		4			6			14			13
Interest and debt expense		18			22			61			68
Income before income taxes		1,381			1,148			3,433			3,077
Provision for income taxes		413			350			1,018			927
Net income	$	968		$	798		$	2,415		$	2,150

Earnings per common share (EPS):
Basic	$	.95		$	.77		$	2.37		$	2.05
Diluted	$	.94		$	.76		$	2.34		$	2.02

Average shares outstanding (millions):
Basic		1,003			1,023			1,004			1,036
Diluted		1,017			1,035			1,017			1,049

Cash dividends declared per common share	$	.38		$	.34		$	1.14		$	1.02

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	$	968		$	798		$	2,415		$	2,150
Income allocated to RSUs		(11	)		(11	)		(29	)		(30	)
Income allocated to common stock for diluted EPS	$	957		$	787		$	2,386		$	2,120

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

	For Three Months Ended						For Nine Months Ended
Consolidated Statements of Comprehensive Income	September 30,						September 30,
(Millions of dollars)	2016			2015			2016			2015
Net income	$	968		$	798		$	2,415		$	2,150
Other comprehensive income (loss), net of taxes:
Net actuarial gains (losses) of defined benefit plans:
Adjustments		(17	)		(33	)		(47	)		(43	)
Recognized within Net income		12			13			39			40
Prior service (cost) credit of defined benefit plans:
Adjustments		—			20			1			20
Recognized within Net income		(1	)		—			(3	)		1
Derivative instruments:
Recognized within Net income		—			1			—			1
Other comprehensive income (loss)		(6	)		1			(10	)		19
Total comprehensive income	$	962		$	799		$	2,405		$	2,169

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets	September 30,			December 31,
(Millions of dollars, except share amounts)	2016			2015
Assets
Current assets:
Cash and cash equivalents	$	1,369		$	1,000
Short-term investments		1,768			2,218
Accounts receivable, net of allowances of ($14) and ($7)		1,447			1,165
Raw materials		104			109
Work in process		949			846
Finished goods		755			736
Inventories		1,808			1,691
Prepaid expenses and other current assets		789			1,000
Total current assets		7,181			7,074
Property, plant and equipment at cost		4,982			5,465
Accumulated depreciation		(2,437	)		(2,869	)
Property, plant and equipment, net		2,545			2,596
Long-term investments		233			221
Goodwill, net		4,362			4,362
Acquisition-related intangibles, net		1,344			1,583
Deferred income taxes		355			201
Capitalized software licenses, net		50			46
Overfunded retirement plans		64			85
Other assets		82			62
Total assets	$	16,216		$	16,230

Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	634		$	1,000
Accounts payable		428			386
Accrued compensation		647			664
Income taxes payable		68			95
Accrued expenses and other liabilities		393			410
Total current liabilities		2,170			2,555
Long-term debt		2,977			3,120
Underfunded retirement plans		201			196
Deferred income taxes		35			37
Deferred credits and other liabilities		547			376
Total liabilities		5,930			6,284
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		1,757			1,629
Retained earnings		32,432			31,176
Treasury common stock at cost
Shares: September 30, 2016 – 739,693,480; December 31, 2015 – 729,547,527		(25,102	)		(24,068	)
Accumulated other comprehensive income (loss), net of taxes (AOCI)		(542	)		(532	)
Total stockholders’ equity		10,286			9,946
Total liabilities and stockholders’ equity	$	16,216		$	16,230

See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

	For Nine Months Ended
Consolidated Statements of Cash Flows	September 30,
(Millions of dollars)	2016			2015
Cash flows from operating activities
Net income	$	2,415		$	2,150
Adjustments to Net income:
Depreciation		466			594
Amortization of acquisition-related intangibles		239			240
Amortization of capitalized software		23			38
Stock-based compensation		204			228
Gains on sales of assets		—			(3	)
Deferred income taxes		(160	)		(106	)
Increase (decrease) from changes in:
Accounts receivable		(274	)		(241	)
Inventories		(117	)		13
Prepaid expenses and other current assets		130			89
Accounts payable and accrued expenses		(56	)		(190	)
Accrued compensation		(26	)		(37	)
Income taxes payable		153			21
Changes in funded status of retirement plans		56			65
Other		(24	)		(23	)
Cash flows from operating activities		3,029			2,838

Cash flows from investing activities
Capital expenditures		(421	)		(387	)
Proceeds from asset sales		—			10
Purchases of short-term investments		(2,171	)		(1,713	)
Proceeds from short-term investments		2,625			2,455
Other		2			8
Cash flows from investing activities		35			373

Cash flows from financing activities
Proceeds from issuance of long-term debt		499			498
Repayment of debt		(1,000	)		(1,000	)
Dividends paid		(1,147	)		(1,058	)
Stock repurchases		(1,657	)		(2,114	)
Proceeds from common stock transactions		484			332
Excess tax benefit from share-based payments		129			68
Other		(3	)		(3	)
Cash flows from financing activities		(2,695	)		(3,277	)

Net change in Cash and cash equivalents		369			(66	)
Cash and cash equivalents at beginning of period		1,000			1,199
Cash and cash equivalents at end of period	$	1,369		$	1,133

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.

•

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

We report the results of our remaining business activities in Other. Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments. Other includes DLP® products, calculators, custom ASICs and royalties received from agreements involving license rights to our patent portfolio.

Our centralized manufacturing and support organizations, such as facilities, procurement and logistics, provide support to our operating segments, including those in Other. 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.

Segment information

	For Three Months Ended				For Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue:
Analog	$	2,323	$	2,182	$	6,246	$	6,266
Embedded Processing		795		725		2,279		2,087
Other		557		522		1,431		1,458
Total revenue	$	3,675	$	3,429	$	9,956	$	9,811

Operating profit:
Analog	$	949	$	812	$	2,399	$	2,261
Embedded Processing		220		174		591		432
Other		226		178		490		439
Total operating profit	$	1,395	$	1,164	$	3,480	$	3,132

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 United States (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, 2015. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2016 and 2015, and the Consolidated Balance Sheet as of September 30, 2016, 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, 2015. 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.

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,
	2016							2015
	Net							Net
	Income			Shares		EPS		Income			Shares		EPS
Basic EPS:
Net income	$	968						$	798
Income allocated to RSUs		(11	)						(11	)
Income allocated to common stock
for basic EPS calculation	$	957			1,003	$	.95	$	787			1,023	$	.77

Adjustment for dilutive shares:
Stock-based compensation plans					14							12