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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, 2019
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)

Delaware75-0289970
(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


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00TXNThe Nasdaq Global Select Market
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 every Interactive Data File required to be submitted 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 such files). Yes  No 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
934,775,441
Number of shares of Registrant’s common stock outstanding as of
October 25, 2019


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. Financial statements

 For Three Months EndedFor Nine Months Ended
Consolidated Statements of IncomeSeptember 30,September 30,
(Millions of dollars, except share and per-share amounts)2019201820192018
Revenue$3,771  $4,261  $11,033  $12,067  
Cost of revenue (COR)1,325  1,457  3,966  4,197  
Gross profit2,446  2,804  7,067  7,870  
Research and development (R&D)379  390  1,158  1,159  
Selling, general and administrative (SG&A)399  396  1,233  1,270  
Acquisition charges79  80  238  239  
Restructuring charges/other  1  (36) 5  
Operating profit1,589  1,937  4,474  5,197  
Other income (expense), net (OI&E)34  23  122  75  
Interest and debt expense43  36  125  89  
Income before income taxes1,580  1,924  4,471  5,183  
Provision for income taxes155  354  524  842  
Net income$1,425  $1,570  $3,947  $4,341  
Earnings per common share (EPS):    
Basic$1.51  $1.61  $4.19  $4.41  
Diluted$1.49  $1.58  $4.12  $4.32  
Average shares outstanding (millions):    
Basic935  969  937  976  
Diluted950  989  953  997  
A portion of net income is allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents. Diluted EPS is calculated using the following:
Net income$1,425  $1,570  $3,947  $4,341  
Income allocated to RSUs(8) (11) (25) (34) 
Income allocated to common stock for diluted EPS$1,417  $1,559  $3,922  $4,307  
See accompanying notes.    


2

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
 For Three Months EndedFor Nine Months Ended
Consolidated Statements of Comprehensive IncomeSeptember 30,September 30,
(Millions of dollars)2019201820192018
Net income$1,425  $1,570  $3,947  $4,341  
Other comprehensive income (loss), net of taxes    
Net actuarial losses of defined benefit plans:    
Adjustments5  3    2  
Recognized within net income9  15  30  33  
Prior service credit of defined benefit plans:    
Recognized within net income  (1)   (3) 
Derivative instruments:    
Change in fair value      (2) 
Other comprehensive income (loss)14  17  30  30  
Total comprehensive income$1,439  $1,587  $3,977  $4,371  
See accompanying notes.    


3

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
September 30,December 31,
Consolidated Balance Sheets20192018
(Millions of dollars, except share amounts)  
Assets  
Current assets:  
Cash and cash equivalents$3,893  $2,438  
Short-term investments1,174  1,795  
Accounts receivable, net of allowances of ($13) and ($19)
1,342  1,207  
Raw materials175  181  
Work in process955  1,070  
Finished goods910  966  
Inventories2,040  2,217  
Prepaid expenses and other current assets264  440  
Total current assets8,713  8,097  
Property, plant and equipment at cost5,683  5,425  
Accumulated depreciation(2,365) (2,242) 
Property, plant and equipment3,318  3,183  
Long-term investments298  251  
Goodwill4,362  4,362  
Acquisition-related intangibles390  628  
Deferred tax assets257  295  
Capitalized software licenses77  89  
Overfunded retirement plans106  92  
Other long-term assets471  140  
Total assets$17,992  $17,137  
Liabilities and stockholders’ equity  
Current liabilities:  
Current portion of long-term debt$499  $749  
Accounts payable397  478  
Accrued compensation609  724  
Income taxes payable58  103  
Accrued expenses and other liabilities444  420  
Total current liabilities2,007  2,474  
Long-term debt5,302  4,319  
Underfunded retirement plans123  118  
Deferred tax liabilities49  42  
Other long-term liabilities1,526  1,190  
Total liabilities9,007  8,143  
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 capital2,058  1,950  
Retained earnings39,674  37,906  
Treasury common stock at cost  
Shares: September 30, 2019 – 805,637,804; December 31, 2018 – 795,665,646
(34,045) (32,130) 
Accumulated other comprehensive income (loss), net of taxes (AOCI)(443) (473) 
Total stockholders’ equity8,985  8,994  
Total liabilities and stockholders’ equity$17,992  $17,137  
  
See accompanying notes.  


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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
 For Nine Months Ended
Consolidated Statements of Cash FlowsSeptember 30,
(Millions of dollars)20192018
Cash flows from operating activities  
Net income$3,947  $4,341  
Adjustments to net income:
Depreciation522  432  
Amortization of acquisition-related intangibles238  239  
Amortization of capitalized software40  34  
Stock compensation176  190  
Gains on sales of assets(23)   
Deferred taxes31  (82) 
Increase (decrease) from changes in:
Accounts receivable(135) (307) 
Inventories177  (181) 
Prepaid expenses and other current assets285  568  
Accounts payable and accrued expenses(64) 6  
Accrued compensation(115) (112) 
Income taxes payable(200) 11  
Changes in funded status of retirement plans26  26  
Other(10) (121) 
Cash flows from operating activities4,895  5,044  
Cash flows from investing activities  
Capital expenditures(684) (808) 
Proceeds from asset sales30    
Purchases of short-term investments(1,374) (5,308) 
Proceeds from short-term investments2,004  4,545  
Other25  (12) 
Cash flows from investing activities1  (1,583) 
Cash flows from financing activities  
Proceeds from issuance of long-term debt1,491  1,500  
Repayment of debt(750) (500) 
Dividends paid(2,167) (1,819) 
Stock repurchases(2,471) (3,091) 
Proceeds from common stock transactions491  335  
Other(35) (40) 
Cash flows from financing activities(3,441) (3,615) 
Net change in cash and cash equivalents1,455  (154) 
Cash and cash equivalents at beginning of period2,438  1,656  
Cash and cash equivalents at end of period$3,893  $1,502  
See accompanying notes.  

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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to financial statements
1. Description of business, including segment and geographic area 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 – consisting of the following product lines: Power, Signal Chain and High Volume.
Embedded Processing – consisting of the following product lines: Connected Microcontrollers and Processors.
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 and custom ASIC products.
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 EndedFor Nine Months Ended
September 30,September 30,
 2019201820192018
Revenue:    
Analog$2,674  $2,907  $7,726  $8,163  
Embedded Processing724  894  2,310  2,763  
Other373  460  997  1,141  
Total revenue$3,771  $4,261  $11,033  $12,067  
Operating profit:
Analog$1,231  $1,447  $3,427  $3,876  
Embedded Processing233  309  747  971  
Other125  181  300  350  
Total operating profit$1,589  $1,937  $4,474  $5,197  
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Geographic area information
The following geographic area information includes revenue based on product shipment destination. The revenue information is not necessarily indicative of the geographic area in which the end applications containing our products are ultimately consumed because our products tend to be shipped to the locations where our customers manufacture their products. Specifically, many of our products are shipped to our customers in China who may include these parts in the manufacture of their own end products, which they may in turn export to their customers around the world.
For Three Months EndedFor Nine Months Ended
September 30,September 30,
2019201820192018
Revenue:
United States$504  $665  $1,468  $1,783  
Asia (a)2,263  2,520  6,512  7,075  
Europe, Middle East and Africa699  769  2,151  2,304  
Japan198  218  607  656  
Rest of world107  89  295  249  
Total revenue$3,771  $4,261  $11,033  $12,067  
(a)Revenue from products shipped into China was $1.9 billion and $2.0 billion in the third quarters of 2019 and 2018, respectively, and $5.4 billion and $5.3 billion in the first nine months of 2019 and 2018, respectively.

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, 2018, except for the effects of adopting Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2019 and 2018, and the Consolidated Balance Sheet as of September 30, 2019, 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, 2018. The results for the three- and nine-month periods are not necessarily indicative of a full year’s results.
Significant accounting policies and practices
Leases
We determine if an arrangement is a lease at inception. Leases are included in other long-term assets, accrued expenses and other liabilities, and other long-term liabilities on our Consolidated Balance Sheets.
Lease assets represent our right to use underlying assets for the lease term, and lease liabilities represent our obligations to make lease payments over the lease term. On the commencement date, leases are evaluated for classification, and assets and liabilities are recognized based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. Operating lease expense is generally recognized on a straight-line basis over the lease term. Our lease values include options to extend or not to terminate the lease when it is reasonably certain that we will exercise such options.
We have agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with an initial lease term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Earnings per share (EPS)
We use the two-class method for calculating EPS because the restricted stock units (RSUs) we grant are participating securities containing non-forfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to RSUs and excluded from the calculation of income 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,
 20192018
Net
Income
SharesEPSNet
Income
SharesEPS
Basic EPS:      
Net income$1,425    $1,570    
Income allocated to RSUs(9)   (12)   
Income allocated to common stock$1,416  935  $1.51  $1,558  969  $1.61  
Dilutive effect of stock compensation plans15   20  
Diluted EPS: 
Net income$1,425   $1,570  
Income allocated to RSUs(8)  (11) 
Income allocated to common stock$1,417  950  $1.49  $1,559  989  $1.58  

 For Nine Months Ended September 30,
 20192018
Net
Income
SharesEPSNet
Income
SharesEPS
Basic EPS:      
Net income$3,947    $4,341    
Income allocated to RSUs(25)   (34)   
Income allocated to common stock$3,922  937  $4.19  $4,307  976  $4.41  
Dilutive effect of stock compensation plans16  21  
Diluted EPS:
Net income$3,947  $4,341  
Income allocated to RSUs(25) (34) 
Income allocated to common stock$3,922  953  $4.12  $4,307  997  $4.32  
Potentially dilutive securities representing 6 million and 4 million shares of common stock that were outstanding during the third quarters of 2019 and 2018, and 7 million and 4 million shares outstanding during the first nine months of 2019 and 2018, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive.
Derivatives and hedging
We use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments.
In connection with the issuance of long-term debt, we may use financial derivatives such as treasury-rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material.
We do not use derivatives for speculative or trading purposes.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Fair values of financial instruments
The fair values of our derivative financial instruments were not material as of September 30, 2019. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our deferred compensation liabilities, are carried at fair value. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. As of September 30, 2019, the carrying value of long-term debt, including the current portion, was $5.80 billion, and the estimated fair value was $6.32 billion. The estimated fair value is measured using broker-dealer quotes, which are Level 2 inputs. See Note 4 for a description of fair value and the definition of Level 2 inputs.
Changes in accounting standards – adopted standards for current period
ASU No. 2016-02, Leases (Topic 842)
We adopted ASU No. 2016-02, Leases (ASC 842) effective January 1, 2019, using the modified retrospective transition method applied to leases existing at, or entered into after, the adoption date. The reported results for 2019 reflect the application of the new accounting guidance, while the reported results for prior periods are not adjusted and continue to be reported in accordance with our historical accounting under ASC 840, Leases. In addition, we elected the package of practical expedients permitted under the transition guidance that allowed us to apply prior conclusions related to lease definition, classification and initial direct costs.
The adoption of the new standard resulted in the recognition of $229 million of lease liabilities with corresponding lease assets as of January 1, 2019. The standard did not materially impact our results of operations and had no impact on cash flows.
Other standards
The following standards were also adopted:
ASU Description Adopted Date
ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities January 1, 2019
ASU No. 2018-14 Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans January 1, 2019
Changes in accounting standards – standards not yet adopted
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This standard requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of being incurred. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a reduction to the amortized cost basis of the securities. We plan to adopt this standard when effective, beginning January 1, 2020, applying the guidance on a modified retrospective basis. We are currently evaluating the potential impact of this standard, but we do not expect it to have a material impact on our financial position or results of operations.
Other standards
We are evaluating the impact of the following standards, but we do not expect them to have a material impact on our financial position or results of operations. We plan to adopt these standards as of their effective dates.
 
ASU Description Effective Date
ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement January 1, 2020
ASU No. 2018-15 Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract January 1, 2020

3. Income taxes
Our estimated annual effective tax rate is about 16%, which does not include discrete tax items. This differs from the 21% statutory corporate tax rate due to the effect of U.S. tax benefits.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Provision for income taxes is based on the following:
For Three Months EndedFor Nine Months Ended
September 30,September 30,
 2019201820192018
Taxes calculated using the estimated annual effective tax rate$257  $367  $715  $1,027  
Discrete tax items(102) (13) (191) (185) 
Provision for income taxes$155  $354  $524  $842  
Actual effective tax rate10 %18 %12 %16 %

4. Valuation of debt and equity investments and certain liabilities
Debt and equity investments measured at fair value
Available-for-sale debt investments and trading securities are stated at fair value, which is generally based on market prices or broker quotes. See Fair-value considerations below. Unrealized gains and losses from available-for-sale debt securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets. Other-than-temporary impairments on available-for-sale debt securities are recorded in OI&E in our Consolidated Statements of Income.
We classify certain mutual funds as trading securities. These mutual funds hold a variety of debt and equity investments intended to generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual funds and the related deferred compensation liabilities in SG&A.
Other equity investments
Our other investments include equity-method investments and non-marketable equity investments, which are not measured at fair value. These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from equity-method investments are recognized in OI&E based on our ownership share of the investee’s financial results.
Non-marketable equity securities are measured at cost with adjustments for observable changes in price or impairments. Gains and losses on non-marketable equity investments are recognized in OI&E.
Details of our investments are as follows:
 September 30, 2019December 31, 2018
Cash and Cash
Equivalents
Short-Term
Investments
Long-Term
Investments
Cash and Cash
Equivalents
Short-Term
Investments
Long-Term
Investments
Measured at fair value:      
Available-for-sale debt securities:      
Money market funds$1,510  $  $  $747  $  $  
Corporate obligations377  901    473  748    
U.S. government agency and Treasury securities1,548  273    988  1,047    
Trading securities:
Mutual funds    257      226  
Total3,435  1,174  257  2,208  1,795  226  
Other measurement basis:
Equity-method investments    37      21  
Non-marketable equity investments    4      4  
Cash on hand458      230      
Total$3,893  $1,174  $298  $2,438  $1,795  $251  
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
As of September 30, 2019 and December 31, 2018, unrealized gains and losses associated with our available-for-sale investments were not material. We did not recognize any credit losses related to available-for-sale investments for the first nine months of 2019 and 2018.
Proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $220 million and $1.72 billion for the third quarters of 2019 and 2018, respectively, and $2.00 billion and $4.55 billion for the first nine months of 2019 and 2018, respectively. Gross realized gains and losses from these sales were not material.
The following table presents the aggregate maturities of our available-for-sale debt investments as of September 30, 2019:
 Fair Value
One year or less$4,553  
One to two years56  
There were no other-than-temporary declines and impairments in the values of our debt investments in the first nine months of 2019 or 2018.
Fair-value considerations
We measure and report certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The three-level hierarchy discussed below indicates the extent and level of judgment used to estimate fair-value measurements.
Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date.
Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. We utilize a third-party data service to provide Level 2 valuations. We verify these valuations for reasonableness relative to unadjusted quotes obtained from brokers or dealers based on observable prices for similar assets in active markets.
Level 3 – Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models that utilize management estimates of market participant assumptions. As of September 30, 2019 and December 31, 2018, we had no Level 3 assets or liabilities.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
The following are our assets and liabilities that were accounted for at fair value on a recurring basis. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value.
 September 30, 2019December 31, 2018
 Level 1Level 2TotalLevel 1Level 2Total
Assets:      
Money market funds$1,510  $  $1,510  $747  $  $747  
Corporate obligations  1,278  1,278    1,221  1,221  
U.S. government agency and Treasury securities1,821    1,821  2,035    2,035  
Mutual funds257    257