10-Q 1 txn-10q_20150331.htm 10-Q

 

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 March 31, 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

1,040,363,377

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

April 29, 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

 

 

March 31,

 

 

2015

 

 

2014

 

Revenue

$

 

3,150

 

 

$

 

2,983

 

Cost of revenue (COR)

 

 

1,334

 

 

 

 

1,376

 

Gross profit

 

 

1,816

 

 

 

 

1,607

 

Research and development (R&D)

 

 

338

 

 

 

 

366

 

Selling, general and administrative (SG&A)

 

 

439

 

 

 

 

479

 

Acquisition charges

 

 

83

 

 

 

 

83

 

Restructuring charges/other

 

 

(2

)

 

 

 

(11

)

Operating profit

 

 

958

 

 

 

 

690

 

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

 

 

4

 

 

 

 

6

 

Interest and debt expense

 

 

22

 

 

 

 

25

 

Income before income taxes

 

 

940

 

 

 

 

671

 

Provision for income taxes

 

 

284

 

 

 

 

184

 

Net income

$

 

656

 

 

$

 

487

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

Basic

$

 

.62

 

 

$

 

.44

 

Diluted

$

 

.61

 

 

$

 

.44

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (millions):

 

 

 

 

 

 

 

 

 

Basic

 

 

1,046

 

 

 

 

1,081

 

Diluted

 

 

1,061

 

 

 

 

1,096

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

 

.34

 

 

$

 

.30

 

 

 

 

 

 

 

 

 

 

 

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

$

 

656

 

 

$

 

487

 

Income allocated to RSUs

 

 

(9

)

 

 

 

(7

)

Income allocated to common stock for diluted EPS

$

 

647

 

 

$

 

480

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Statements of Comprehensive Income

(Millions of dollars)

 

 

 

For Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Net income

$

 

656

 

 

$

 

487

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

 

 

Net actuarial gains (losses) of defined benefit plans:

 

 

 

 

 

 

 

 

 

Adjustments

 

 

(10

)

 

 

 

(2

)

Recognized within Net income

 

 

10

 

 

 

 

10

 

Prior service cost of defined benefit plans:

 

 

 

 

 

 

 

 

 

Recognized within Net income

 

 

1

 

 

 

 

 

Other comprehensive income (loss)

 

 

1

 

 

 

 

8

 

Total comprehensive income

$

 

657

 

 

$

 

495

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

1,242

 

 

$

 

1,199

 

Short-term investments

 

 

2,062

 

 

 

 

2,342

 

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

 

 

1,394

 

 

 

 

1,246

 

Raw materials

 

 

107

 

 

 

 

101

 

Work in process

 

 

906

 

 

 

 

896

 

Finished goods

 

 

831

 

 

 

 

787

 

Inventories

 

 

1,844

 

 

 

 

1,784

 

Deferred income taxes

 

 

340

 

 

 

 

347

 

Prepaid expenses and other current assets

 

 

810

 

 

 

 

850

 

Total current assets

 

 

7,692

 

 

 

 

7,768

 

Property, plant and equipment at cost

 

 

6,177

 

 

 

 

6,266

 

Accumulated depreciation

 

 

(3,419

)

 

 

 

(3,426

)

Property, plant and equipment, net

 

 

2,758

 

 

 

 

2,840

 

Long-term investments

 

 

232

 

 

 

 

224

 

Goodwill, net

 

 

4,362

 

 

 

 

4,362

 

Acquisition-related intangibles, net

 

 

1,822

 

 

 

 

1,902

 

Deferred income taxes

 

 

174

 

 

 

 

172

 

Capitalized software licenses, net

 

 

73

 

 

 

 

83

 

Overfunded retirement plans

 

 

128

 

 

 

 

127

 

Other assets

 

 

105

 

 

 

 

244

 

Total assets

$

 

17,346

 

 

$

 

17,722

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

 

1,000

 

 

$

 

1,001

 

Accounts payable

 

 

432

 

 

 

 

437

 

Accrued compensation

 

 

349

 

 

 

 

651

 

Income taxes payable

 

 

75

 

 

 

 

71

 

Deferred income taxes

 

 

4

 

 

 

 

4

 

Accrued expenses and other liabilities

 

 

426

 

 

 

 

498

 

Total current liabilities

 

 

2,286

 

 

 

 

2,662

 

Long-term debt

 

 

3,638

 

 

 

 

3,641

 

Underfunded retirement plans

 

 

253

 

 

 

 

225

 

Deferred income taxes

 

 

403

 

 

 

 

399

 

Deferred credits and other liabilities

 

 

397

 

 

 

 

405

 

Total liabilities

 

 

6,977

 

 

 

 

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

 

 

1,410

 

 

 

 

1,368

 

Retained earnings

 

 

29,948

 

 

 

 

29,653

 

Treasury common stock at cost.

 

 

 

 

 

 

 

 

 

Shares: March 31, 2015 – 696,401,920; December 31, 2014 – 694,189,127

 

 

(22,199

)

 

 

 

(21,840

)

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

 

 

(531

)

 

 

 

(532

)

Total stockholders’ equity

 

 

10,369

 

 

 

 

10,390

 

Total liabilities and stockholders’ equity

$

 

17,346

 

 

$

 

17,722

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

4


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Millions of dollars)

 

 

For Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net income

$

 

656

 

 

$

 

487

 

Adjustments to Net income:

 

 

 

 

 

 

 

 

 

Depreciation

 

 

203

 

 

 

 

213

 

Amortization of acquisition-related intangibles

 

 

80

 

 

 

 

81

 

Amortization of capitalized software

 

 

13

 

 

 

 

16

 

Stock-based compensation

 

 

78

 

 

 

 

78

 

Gains on sales of assets

 

 

(1

)

 

 

 

(37

)

Deferred income taxes

 

 

1

 

 

 

 

 

Increase (decrease) from changes in:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(154

)

 

 

 

(149

)

Inventories

 

 

(60

)

 

 

 

17

 

Prepaid expenses and other current assets

 

 

54

 

 

 

 

(29

)

Accounts payable and accrued expenses

 

 

(108

)

 

 

 

(117

)

Accrued compensation

 

 

(294

)

 

 

 

(189

)

Income taxes payable

 

 

147

 

 

 

 

80

 

Changes in funded status of retirement plans

 

 

19

 

 

 

 

22

 

Other

 

 

(25

)

 

 

 

(11

)

Cash flows from operating activities

 

 

609

 

 

 

 

462

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(123

)

 

 

 

(77

)

Proceeds from asset sales

 

 

1

 

 

 

 

37

 

Purchases of short-term investments

 

 

(335

)

 

 

 

(1,051

)

Proceeds from short-term investments

 

 

615

 

 

 

 

785

 

Other

 

 

 

 

 

 

1

 

Cash flows from investing activities

 

 

158

 

 

 

 

(305

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

 

 

 

498

 

Dividends paid

 

 

(356

)

 

 

 

(325

)

Stock repurchases

 

 

(670

)

 

 

 

(720

)

Proceeds from common stock transactions

 

 

246

 

 

 

 

283

 

Excess tax benefit from share-based payments

 

 

56

 

 

 

 

49

 

Other

 

 

 

 

 

 

(4

)

Cash flows from financing activities

 

 

(724

)

 

 

 

(219

)

 

 

 

 

 

 

 

 

 

 

Net change in Cash and cash equivalents

 

 

43

 

 

 

 

(62

)

Cash and cash equivalents at beginning of period

 

 

1,199

 

 

 

 

1,627

 

Cash and cash equivalents at end of period

$

 

1,242

 

 

$

 

1,565

 

 

 

 

 

 

 

 

 

 

 

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: Processor, Microcontrollers and Connectivity.

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

Segment information

 

 

For Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

Analog

$

 

2,035

 

 

$

 

1,837

 

Embedded Processing

 

 

672

 

 

 

 

656

 

Other

 

 

443

 

 

 

 

490

 

Total revenue

$

 

3,150

 

 

$

 

2,983

 

 

 

 

 

 

 

 

 

 

 

Operating profit:

 

 

 

 

 

 

 

 

 

Analog

$

 

721

 

 

$

 

498

 

Embedded Processing

 

 

123

 

 

 

 

52

 

Other

 

 

114

 

 

 

 

140

 

Total operating profit

$

 

958

 

 

$

 

690

 

 

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 March 31, 2015 and 2014, and the Consolidated Balance Sheet as of March 31, 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-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 March 31,

 

 

2015

 

 

2014

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

656

 

 

 

 

 

 

 

 

 

 

 

$

 

487

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for basic EPS calculation

$

 

647

 

 

 

1,046

 

 

$

 

.62

 

 

$

 

480

 

 

 

1,081

 

 

$

 

.44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

656

 

 

 

 

 

 

 

 

 

 

 

$

 

487

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for diluted EPS calculation

$

 

647

 

 

 

1,061

 

 

$

 

.61

 

 

$

 

480

 

 

 

1,096

 

 

$

 

.44

 

 

Potentially dilutive securities representing 12 million and 10 million shares of common stock that were outstanding during the first quarters of 2015 and 2014, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive.

Derivatives and hedging

We use derivative financial instruments to manage exposure to foreign currency 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 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.

Fair values of financial instruments

The fair values of our derivative financial instruments were not significant as of March 31, 2015. 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 and are discussed in Note 6. 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. The carrying value of our long-term debt approximates its fair value as measured using broker-dealer quotes, which are based on Level 2 inputs. See Note 6 for the definition of Level 2 inputs.

 

7


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Changes in accounting standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017, for annual and interim reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. We are currently evaluating the potential impact of this standard on our financial position and results of operations.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) – Amendments to the Consolidation Analysis, which changes the way reporting entities evaluate certain investment holdings for possible consolidation and also includes possible changes in disclosures resulting from that evaluation. This standard is effective for annual and interim reporting periods beginning as of January 1, 2016. We are currently evaluating the potential impact of this standard and expect it will have no material impact on our financial position and results of operations.

 

 

3. Acquisition charges

We incurred various costs as a result of the 2011 acquisition of National that are included in Other for segment reporting purposes, consistent with how management measures the performance of its segments. For the three months ended March 31, 2015 and 2014, Acquisition charges were primarily from the ongoing amortization of intangible assets resulting from the National acquisition. See Note 7 for more information.

 

 

4. Restructuring charges/other

Restructuring charges/other is comprised of the following components, all of which are recognized in Other for segment reporting purposes:

 

 

 

 

 

 

 

 

 

 

 

For Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Restructuring charges by action

 

 

 

 

 

 

 

 

 

2013 actions:

 

 

 

 

 

 

 

 

 

Severance and benefits cost (a)

$

 

(1

)

 

$

 

27

 

Other exit costs

 

 

 

 

 

 

5

 

Restructuring charges for 2013 actions

 

 

(1

)

 

 

 

32

 

Prior actions:

 

 

 

 

 

 

 

 

 

Severance and benefits cost (a)

 

 

 

 

 

 

(6

)

Accelerated depreciation

 

 

 

 

 

 

1

 

Other exit costs (a)

 

 

 

 

 

 

(1

)

Restructuring charges for prior actions

 

 

 

 

 

 

(6

)

Total restructuring charges

 

 

(1

)

 

 

 

26

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Gains on sales of assets

 

 

 

 

 

 

(37

)

Other

 

 

(1

)

 

 

 

 

Restructuring charges/other

$

 

(2

)

 

$

 

(11

)

 

(a)

Includes changes in estimates.

2013 actions

We announced in January 2014 cost-saving actions in Embedded Processing and in Japan to reduce expenses and focus our investments on markets with greater potential for sustainable growth and strong long-term returns. We expect the actions to be completed by mid-2015. Cost reductions include the elimination of about 1,100 jobs worldwide. Through March 31, 2015, we have recognized $74 million in cumulative restructuring charges, with no further material charges expected. As of March 31, 2015, $48 million has been paid to terminated employees for severance and benefits.  

 

8


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Prior actions

Prior to 2013, we announced a restructuring of our former Wireless business and the closures of manufacturing facilities in Houston, Texas and Hiji, Japan. These actions were completed in 2013, and as of March 31, 2015, $356 million has been paid to terminated employees for severance and benefits. 

The table below reflects the changes in accrued restructuring balances associated with these actions:

 

 

2013 Actions

 

 

Prior Actions

 

 

 

 

 

 

 

Severance

 

 

Other

 

 

Severance

 

 

 

 

 

 

 

and Benefits

 

 

Charges

 

 

and Benefits

 

 

Total

 

Accrual as of December 31, 2014

$

 

22

 

 

$

 

9

 

 

$

 

26

 

 

$

 

57

 

Restructuring charges (a)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Payments

 

 

(5

)

 

 

 

(1

)

 

 

 

(6

)

 

 

 

(12

)

Remaining accrual as of March 31, 2015

$

 

16

 

 

$

 

8

 

 

$

 

20

 

 

$

 

44

 

 

(a)

Includes changes in estimates.

 

The accrual balances above are primarily reported as a component of either Accrued expenses and other liabilities or Deferred credits and other liabilities on our Consolidated Balance Sheets, depending on the expected timing of payment.

Other

Gains on sales of assets

During the first quarter of 2014, we recognized $37 million of gains on sales of assets. This consisted of $30 million associated with the sale of our site in Nice, France, and $7 million of asset sales associated primarily with the closure of our Houston, Texas, and Hiji, Japan, manufacturing facilities.

 

 

5. Income taxes

Federal income taxes for the interim periods presented have been included in the accompanying financial statements on the basis of an estimated annual effective tax rate. The rate is based on current tax law and for 2015 does not assume reinstatement of the federal research tax credit, which expired at the end of 2014. As of March 31, 2015, the estimated annual effective tax rate for 2015 is about 30 percent, which differs from the 35 percent statutory corporate tax rate due to lower statutory tax rates applicable to our operations in many of the jurisdictions in which we operate and from U.S. tax benefits.

 

 

6. Valuation of debt and equity investments and certain liabilities

Debt and equity investments

We classify our investments as available for sale, trading, equity method or cost method. Most of our investments are classified as available for sale.

Available-for-sale and trading securities are stated at fair value, which is generally based on market prices or broker quotes. See fair-value discussion below. Unrealized gains and losses on available-for-sale securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets. We record other-than-temporary impairments on available-for-sale securities 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.

Our other investments are not measured at fair value but are accounted for using either the equity method or cost method. These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from equity-method investments are reflected in OI&E based on our ownership share of the investee’s financial results. Gains and losses on cost-method investments are recorded in OI&E when realized or when an impairment of the investment’s value is warranted based on our assessment of the recoverability of each investment.

 

9


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Details of our investments are as follows:

 

 

March 31, 2015

 

 

December 31, 2014

 

 

Cash and Cash

 

 

Short-Term

 

 

Long-Term

 

 

Cash and Cash

 

 

Short-Term

 

 

Long-Term

 

 

Equivalents

 

 

Investments

 

 

Investments

 

 

Equivalents

 

 

Investments

 

 

Investments

 

Measured at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

 

442

 

 

$

 

 

 

$

 

 

 

$

 

522

 

 

$

 

 

 

$

 

 

Corporate obligations

 

 

160

 

 

 

 

365

 

 

 

 

 

 

 

 

97

 

 

 

 

390

 

 

 

 

 

U.S. Government agency and Treasury securities

 

 

390

 

 

 

 

1,697

 

 

 

 

 

 

 

 

365

 

 

 

 

1,952

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

 

 

 

 

 

 

 

 

 

193

 

 

 

 

 

 

 

 

 

 

 

 

185

 

Total

 

 

992

 

 

 

 

2,062

 

 

 

 

193

 

 

 

 

984

 

 

 

 

2,342

 

 

 

 

185