10-Q 1 txn-10q_20160930.htm FORM 10-Q 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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.

 

6


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Significant accounting policies and practices

Earnings per share (EPS)

Unvested share-based payment awards that contain non-forfeitable rights to receive dividends or dividend equivalents, such as our restricted stock units (RSUs), are considered to be participating securities and the two-class method is used for purposes of calculating EPS. Under the two-class method, a portion of Net income is allocated to these participating securities and, therefore, is excluded from the calculation of EPS allocated to common stock, as shown in the table below. 

Computation and reconciliation of earnings per common share are as follows (shares in millions):

 

 

For Three Months Ended September 30,

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

</