10-Q 1 txn-10q_20160331.htm 10-Q txn-10q_20160331.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 March 31, 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  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

1,004,226,911

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

April 27, 2016

 

 

 

 


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

 

 

 

For Three Months Ended

 

Consolidated Statements of Income

 

March 31,

 

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

 

2016

 

 

2015

 

Revenue

 

$

 

3,008

 

 

$

 

3,150

 

Cost of revenue (COR)

 

 

 

1,184

 

 

 

 

1,334

 

Gross profit

 

 

 

1,824

 

 

 

 

1,816

 

Research and development (R&D)

 

 

 

326

 

 

 

 

338

 

Selling, general and administrative (SG&A)

 

 

 

448

 

 

 

 

439

 

Acquisition charges

 

 

 

80

 

 

 

 

83

 

Restructuring charges/other

 

 

 

2

 

 

 

 

(2

)

Operating profit

 

 

 

968

 

 

 

 

958

 

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

 

 

 

4

 

 

 

 

4

 

Interest and debt expense

 

 

 

22

 

 

 

 

22

 

Income before income taxes

 

 

 

950

 

 

 

 

940

 

Provision for income taxes

 

 

 

282

 

 

 

 

284

 

Net income

 

$

 

668

 

 

$

 

656

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

.65

 

 

$

 

.62

 

Diluted

 

$

 

.65

 

 

$

 

.61

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (millions):

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

1,007

 

 

 

 

1,046

 

Diluted

 

 

 

1,018

 

 

 

 

1,061

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

 

.38

 

 

$

 

.34

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

 

668

 

 

$

 

656

 

Income allocated to RSUs

 

 

 

(9

)

 

 

 

(9

)

Income allocated to common stock for diluted EPS

 

$

 

659

 

 

$

 

647

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

For Three Months Ended

 

Consolidated Statements of Comprehensive Income

 

March 31,

 

(Millions of dollars)

 

2016

 

 

2015

 

Net income

 

$

 

668

 

 

$

 

656

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

Net actuarial gains (losses) of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

(12

)

 

 

 

(10

)

Recognized within Net income

 

 

 

14

 

 

 

 

10

 

Prior service (cost) credit of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

Recognized within Net income

 

 

 

(1

)

 

 

 

1

 

Other comprehensive income (loss)

 

 

 

1

 

 

 

 

1

 

Total comprehensive income

 

$

 

669

 

 

$

 

657

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

March 31,

 

 

December 31,

 

(Millions of dollars, except share amounts)

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

1,281

 

 

$

 

1,000

 

Short-term investments

 

 

 

1,519

 

 

 

 

2,218

 

Accounts receivable, net of allowances of ($11) and ($7)

 

 

 

1,269

 

 

 

 

1,165

 

Raw materials

 

 

 

105

 

 

 

 

109

 

Work in process

 

 

 

888

 

 

 

 

846

 

Finished goods

 

 

 

812

 

 

 

 

736

 

Inventories

 

 

 

1,805

 

 

 

 

1,691

 

Prepaid expenses and other current assets

 

 

 

785

 

 

 

 

1,000

 

Total current assets

 

 

 

6,659

 

 

 

 

7,074

 

Property, plant and equipment at cost

 

 

 

5,290

 

 

 

 

5,465

 

Accumulated depreciation

 

 

 

(2,736

)

 

 

 

(2,869

)

Property, plant and equipment, net

 

 

 

2,554

 

 

 

 

2,596

 

Long-term investments

 

 

 

220

 

 

 

 

221

 

Goodwill, net

 

 

 

4,362

 

 

 

 

4,362

 

Acquisition-related intangibles, net

 

 

 

1,503

 

 

 

 

1,583

 

Deferred income taxes

 

 

 

175

 

 

 

 

201

 

Capitalized software licenses, net

 

 

 

53

 

 

 

 

46

 

Overfunded retirement plans

 

 

 

84

 

 

 

 

85

 

Other assets

 

 

 

76

 

 

 

 

62

 

Total assets

 

$

 

15,686

 

 

$

 

16,230

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

1,249

 

 

$

 

1,000

 

Accounts payable

 

 

 

387

 

 

 

 

386

 

Accrued compensation

 

 

 

340

 

 

 

 

664

 

Income taxes payable

 

 

 

67

 

 

 

 

95

 

Accrued expenses and other liabilities

 

 

 

377

 

 

 

 

410

 

Total current liabilities

 

 

 

2,420

 

 

 

 

2,555

 

Long-term debt

 

 

 

2,869

 

 

 

 

3,120

 

Underfunded retirement plans

 

 

 

195

 

 

 

 

196

 

Deferred income taxes

 

 

 

38

 

 

 

 

37

 

Deferred credits and other liabilities

 

 

 

382

 

 

 

 

376

 

Total liabilities

 

 

 

5,904

 

 

 

 

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

 

 

 

1,558

 

 

 

 

1,629

 

Retained earnings

 

 

 

31,457

 

 

 

 

31,176

 

Treasury common stock at cost

 

 

 

 

 

 

 

 

 

 

Shares: March 31, 2016 – 734,244,179; December 31, 2015 – 729,547,527

 

 

 

(24,443

)

 

 

 

(24,068

)

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

 

 

 

(531

)

 

 

 

(532

)

Total stockholders’ equity

 

 

 

9,782

 

 

 

 

9,946

 

Total liabilities and stockholders’ equity

 

$

 

15,686

 

 

$

 

16,230

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

For Three Months Ended

 

Consolidated Statements of Cash Flows

 

March 31,

 

(Millions of dollars)

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

668

 

 

$

 

656

 

Adjustments to Net income:

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

161

 

 

 

 

203

 

Amortization of acquisition-related intangibles

 

 

 

80

 

 

 

 

80

 

Amortization of capitalized software

 

 

 

8

 

 

 

 

13

 

Stock-based compensation

 

 

 

72

 

 

 

 

78

 

Gains on sales of assets

 

 

 

 

 

 

 

(1

)

Deferred income taxes

 

 

 

24

 

 

 

 

1

 

Increase (decrease) from changes in:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(100

)

 

 

 

(154

)

Inventories

 

 

 

(114

)

 

 

 

(60

)

Prepaid expenses and other current assets

 

 

 

43

 

 

 

 

54

 

Accounts payable and accrued expenses

 

 

 

(104

)

 

 

 

(108

)

Accrued compensation

 

 

 

(322

)

 

 

 

(294

)

Income taxes payable

 

 

 

131

 

 

 

 

147

 

Changes in funded status of retirement plans

 

 

 

18

 

 

 

 

19

 

Other

 

 

 

(18

)

 

 

 

(25

)

Cash flows from operating activities

 

 

 

547

 

 

 

 

609

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(124

)

 

 

 

(123

)

Proceeds from asset sales

 

 

 

 

 

 

 

1

 

Purchases of short-term investments

 

 

 

(200

)

 

 

 

(335

)

Proceeds from short-term investments

 

 

 

900

 

 

 

 

615

 

Other

 

 

 

(3

)

 

 

 

 

Cash flows from investing activities

 

 

 

573

 

 

 

 

158

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Dividends paid

 

 

 

(383

)

 

 

 

(356

)

Stock repurchases

 

 

 

(630

)

 

 

 

(670

)

Proceeds from common stock transactions

 

 

 

131

 

 

 

 

246

 

Excess tax benefit from share-based payments

 

 

 

43

 

 

 

 

56

 

Cash flows from financing activities

 

 

 

(839

)

 

 

 

(724

)

 

 

 

 

 

 

 

 

 

 

 

Net change in Cash and cash equivalents

 

 

 

281

 

 

 

 

43

 

Cash and cash equivalents at beginning of period

 

 

 

1,000

 

 

 

 

1,199

 

Cash and cash equivalents at end of period

 

$

 

1,281

 

 

$

 

1,242

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

·

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

 

 

March 31,

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

Analog

$

 

1,879

 

 

$

 

2,035

 

Embedded Processing

 

 

729

 

 

 

 

672

 

Other

 

 

400

 

 

 

 

443

 

Total revenue

$

 

3,008

 

 

$

 

3,150

 

 

 

 

 

 

 

 

 

 

 

Operating profit:

 

 

 

 

 

 

 

 

 

Analog

$

 

679

 

 

$

 

721

 

Embedded Processing

 

 

182

 

 

 

 

123

 

Other

 

 

107

 

 

 

 

114

 

Total operating profit

$

 

968

 

 

$

 

958

 

 

 

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 March 31, 2016 and 2015, and the Consolidated Balance Sheet as of March 31, 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-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,

 

 

2016

 

 

2015

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

668

 

 

 

 

 

 

 

 

 

 

 

$

 

656

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for basic EPS calculation

$

 

659

 

 

 

1,007

 

 

$

 

.65

 

 

$

 

647

 

 

 

1,046

 

 

$

 

.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

668

 

 

 

 

 

 

 

 

 

 

 

$

 

656

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for diluted EPS calculation

$

 

659

 

 

 

1,018

 

 

$

 

.65

 

 

$

 

647

 

 

 

1,061

 

 

$

 

.61

 

 

Potentially dilutive securities representing 22 million and 12 million shares of common stock that were outstanding during the first quarters of 2016 and 2015, 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 material as of March 31, 2016. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our postretirement plan assets and 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. The carrying value of our long-term debt approximates the fair value as measured using broker-dealer quotes, which are Level 2 inputs. See Note 5 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, and is effective for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption, but not before December 15, 2016, and permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the potential impact of this standard on our financial position and results of operations, as well as our selected transition method. Based on our preliminary assessment, we believe the new standard will not have a material impact on our financial position and results of operations as we do not expect to change the manner or timing of recognizing revenue on a majority of our revenue transactions. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Under this standard, all equity investments except those accounted for under the equity method are required to be measured at fair value. Equity investments that do not have a readily determinable fair value may, as a practical expedient, be measured at cost, adjusted for changes in observable prices minus impairment. This standard is effective for our interim and annual periods beginning January 1, 2018. This standard must be applied using a cumulative-effect adjustment in net income to the beginning of the fiscal year of adoption, except for equity investments without a readily determinable fair value, which are to be applied prospectively to equity investments as of the adoption date. We do not expect this standard to have a material impact on our financial position and results of operations, as nearly all of our equity investments are already recorded at fair value or under the equity method.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard provides for several changes to the accounting for share-based awards. Among other changes, this standard will require recognition of certain income tax effects of awards in net income in the period in which the awards are settled or vested, rather than through additional paid-in capital in the equity section of the balance sheet. The standard also changes the presentation of excess tax benefits and statutory tax withholdings in the statement of cash flows. This standard will be effective for our interim and annual periods beginning January 1, 2017; however, early adoption is permitted. Each of the various provisions within this standard has its own specified transition method; some will be applied prospectively and others will be applied on a retrospective or modified retrospective basis. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position and results of operations.

 

 

3. Restructuring charges/other

Restructuring charges/other are recognized in Other for segment reporting purposes.

Restructuring charges

For the three months ended March 31, 2016, we incurred $2 million in restructuring charges related to our plans to phase out a manufacturing facility in Greenock, Scotland, through the end of 2018. These charges were comprised of severance and benefits costs, as well as accelerated depreciation. Total restructuring charges, primarily severance and related benefit costs, are estimated to be about $40 million, of which $19 million has been recognized through March 31, 2016. The remaining charges are expected to be recognized through the end of 2018. As of March 31, 2016, no payments have been made.

 

8


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Restructuring balances

The restructuring accrual balances 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. The $32 million balance as of December 31, 2015, was composed of $17 million related to the Scotland facility and $15 million related to prior actions. The $29 million balance as of March 31, 2016, is composed of $17 million related to the Scotland facility and $12 million related to prior actions.

 

Balance, December 31, 2015

$

 

32

 

Restructuring charges

 

 

2

 

Payments

 

 

(3

)

Non-cash items (a)

 

 

(2

)

Balance, March 31, 2016

$

 

29

 

 

(a) Reflects charges for impacts of accelerated depreciation and changes in exchange rates.

 

 

4. 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. As of March 31, 2016, the estimated annual effective tax rate for 2016 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.

 

 

5. Valuation of debt and equity investments and certain liabilities

Debt and equity investments

We classify our investments as either 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 the 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, 2016

 

 

December 31, 2015

 

 

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

$

 

536

 

 

$

 

 

 

$

 

 

 

$

 

395

 

 

$

 

 

 

$

 

 

Corporate obligations

 

 

146

 

 

 

 

255

 

 

 

 

 

 

 

 

132

 

 

 

 

285

 

 

 

 

 

U.S. Government agency and Treasury securities

 

 

370

 

 

 

 

1,264

 

 

 

 

 

 

 

 

245

 

 

 

 

1,933

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

 

 

 

 

 

 

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

187

 

Total

 

 

1,052

 

 

 

 

1,519

 

 

 

 

186

 

 

 

 

772

 

 

 

 

2,218

 

 

 

 

187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other measurement basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-method investments

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

25

 

Cost-method investments

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Cash on hand

 

 

229

 

 

 

 

 

 

 

 

 

 

 

 

228

 

 

 

 

 

 

 

 

 

Total