10-Q 1 txn-10q_20170930.htm 10-Q txn-10q_20170930.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, 2017

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 Website, 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, 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 filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller 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  

985,560,591

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

October 24, 2017

 

 

 


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)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue

 

$

 

4,116

 

 

$

 

3,675

 

 

$

 

11,211

 

 

$

 

9,956

 

Cost of revenue (COR)

 

 

 

1,460

 

 

 

 

1,391

 

 

 

 

4,037

 

 

 

 

3,836

 

Gross profit

 

 

 

2,656

 

 

 

 

2,284

 

 

 

 

7,174

 

 

 

 

6,120

 

Research and development (R&D)

 

 

 

375

 

 

 

 

353

 

 

 

 

1,122

 

 

 

 

1,016

 

Selling, general and administrative (SG&A)

 

 

 

412

 

 

 

 

442

 

 

 

 

1,285

 

 

 

 

1,337

 

Acquisition charges

 

 

 

80

 

 

 

 

80

 

 

 

 

239

 

 

 

 

239

 

Restructuring charges/other

 

 

 

1

 

 

 

 

1

 

 

 

 

8

 

 

 

 

5

 

Operating profit

 

 

 

1,788

 

 

 

 

1,408

 

 

 

 

4,520

 

 

 

 

3,523

 

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

 

 

 

20

 

 

 

 

(9

)

 

 

 

67

 

 

 

 

(29

)

Interest and debt expense

 

 

 

19

 

 

 

 

18

 

 

 

 

57

 

 

 

 

61

 

Income before income taxes

 

 

 

1,789

 

 

 

 

1,381

 

 

 

 

4,530

 

 

 

 

3,433

 

Provision for income taxes

 

 

 

504

 

 

 

 

363

 

 

 

 

1,192

 

 

 

 

885

 

Net income

 

$

 

1,285

 

 

$

 

1,018

 

 

$

 

3,338

 

 

$

 

2,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

1.29

 

 

$

 

1.00

 

 

$

 

3.33

 

 

$

 

2.51

 

Diluted

 

$

 

1.26

 

 

$

 

.98

 

 

$

 

3.26

 

 

$

 

2.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

988

 

 

 

 

1,003

 

 

 

 

993

 

 

 

 

1,004

 

Diluted

 

 

 

1,008

 

 

 

 

1,023

 

 

 

 

1,014

 

 

 

 

1,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

 

.50

 

 

$

 

.38

 

 

$

 

1.50

 

 

$

 

1.14

 

 

 

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

 

$

 

1,285

 

 

$

 

1,018

 

 

$

 

3,338

 

 

$

 

2,548

 

Income allocated to RSUs

 

 

 

(11

)

 

 

 

(11

)

 

 

 

(31

)

 

 

 

(31

)

Income allocated to common stock for diluted EPS

 

$

 

1,274

 

 

$

 

1,007

 

 

$

 

3,307

 

 

$

 

2,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

 

1,285

 

 

$

 

1,018

 

 

$

 

3,338

 

 

$

 

2,548

 

Other comprehensive income (loss), net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial gains (losses) of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

(1

)

 

 

 

(17

)

 

 

 

(16

)

 

 

 

(47

)

Recognized within Net income

 

 

 

17

 

 

 

 

12

 

 

 

 

40

 

 

 

 

39

 

Prior service (cost) credit of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Recognized within Net income

 

 

 

(1

)

 

 

 

(1

)

 

 

 

(3

)

 

 

 

(3

)

Other comprehensive income (loss)

 

 

 

15

 

 

 

 

(6

)

 

 

 

21

 

 

 

 

(10

)

Total comprehensive income

 

$

 

1,300

 

 

$

 

1,012

 

 

$

 

3,359

 

 

$

 

2,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

September 30,

 

 

December 31,

 

Consolidated Balance Sheets

 

2017

 

 

2016

 

(Millions of dollars, except share amounts)

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

1,296

 

 

$

 

1,154

 

Short-term investments

 

 

 

2,148

 

 

 

 

2,336

 

Accounts receivable, net of allowances of ($14) and ($17)

 

 

 

1,576

 

 

 

 

1,267

 

Raw materials

 

 

 

120

 

 

 

 

102

 

Work in process

 

 

 

1,103

 

 

 

 

954

 

Finished goods

 

 

 

685

 

 

 

 

734

 

Inventories

 

 

 

1,908

 

 

 

 

1,790

 

Prepaid expenses and other current assets

 

 

 

1,063

 

 

 

 

910

 

Total current assets

 

 

 

7,991

 

 

 

 

7,457

 

Property, plant and equipment at cost

 

 

 

4,668

 

 

 

 

4,923

 

Accumulated depreciation

 

 

 

(2,101

)

 

 

 

(2,411

)

Property, plant and equipment, net

 

 

 

2,567

 

 

 

 

2,512

 

Long-term investments

 

 

 

258

 

 

 

 

235

 

Goodwill, net

 

 

 

4,362

 

 

 

 

4,362

 

Acquisition-related intangibles, net

 

 

 

1,025

 

 

 

 

1,264

 

Deferred income taxes

 

 

 

414

 

 

 

 

374

 

Capitalized software licenses, net

 

 

 

111

 

 

 

 

52

 

Overfunded retirement plans

 

 

 

112

 

 

 

 

96

 

Other assets

 

 

 

89

 

 

 

 

79

 

Total assets

 

$

 

16,929

 

 

$

 

16,431

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

499

 

 

$

 

631

 

Accounts payable

 

 

 

430

 

 

 

 

396

 

Accrued compensation

 

 

 

635

 

 

 

 

710

 

Income taxes payable

 

 

 

74

 

 

 

 

83

 

Accrued expenses and other liabilities

 

 

 

417

 

 

 

 

444

 

Total current liabilities

 

 

 

2,055

 

 

 

 

2,264

 

Long-term debt

 

 

 

3,084

 

 

 

 

2,978

 

Underfunded retirement plans

 

 

 

108

 

 

 

 

129

 

Deferred income taxes

 

 

 

38

 

 

 

 

33

 

Deferred credits and other liabilities

 

 

 

656

 

 

 

 

554

 

Total liabilities

 

 

 

5,941

 

 

 

 

5,958

 

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

 

 

 

1,718

 

 

 

 

1,674

 

Retained earnings

 

 

 

34,935

 

 

 

 

33,107

 

Treasury common stock at cost

 

 

 

 

 

 

 

 

 

 

Shares: September 30, 2017 – 754,459,144; December 31, 2016 – 744,831,978

 

 

 

(26,901

)

 

 

 

(25,523

)

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

 

 

 

(505

)

 

 

 

(526

)

Total stockholders’ equity

 

 

 

10,988

 

 

 

 

10,473

 

Total liabilities and stockholders’ equity

 

$

 

16,929

 

 

$

 

16,431

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

4


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

For Nine Months Ended

 

Consolidated Statements of Cash Flows

 

September 30,

 

(Millions of dollars)

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

3,338

 

 

$

 

2,548

 

Adjustments to Net income:

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

406

 

 

 

 

466

 

Amortization of acquisition-related intangibles

 

 

 

239

 

 

 

 

239

 

Amortization of capitalized software

 

 

 

35

 

 

 

 

23

 

Stock compensation

 

 

 

197

 

 

 

 

204

 

Deferred income taxes

 

 

 

(47

)

 

 

 

(160

)

Increase (decrease) from changes in:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(306

)

 

 

 

(274

)

Inventories

 

 

 

(118

)

 

 

 

(117

)

Prepaid expenses and other current assets

 

 

 

43

 

 

 

 

130

 

Accounts payable and accrued expenses

 

 

 

(19

)

 

 

 

13

 

Accrued compensation

 

 

 

(85

)

 

 

 

(26

)

Income taxes payable

 

 

 

(226

)

 

 

 

153

 

Changes in funded status of retirement plans

 

 

 

36

 

 

 

 

56

 

Other

 

 

 

(59

)

 

 

 

(28

)

Cash flows from operating activities

 

 

 

3,434

 

 

 

 

3,227

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(464

)

 

 

 

(421

)

Proceeds from asset sales

 

 

 

40

 

 

 

 

 

Purchases of short-term investments

 

 

 

(3,105

)

 

 

 

(2,171

)

Proceeds from short-term investments

 

 

 

3,305

 

 

 

 

2,625

 

Other

 

 

 

(5

)

 

 

 

2

 

Cash flows from investing activities

 

 

 

(229

)

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

605

 

 

 

 

499

 

Repayment of debt

 

 

 

(625

)

 

 

 

(1,000

)

Dividends paid

 

 

 

(1,493

)

 

 

 

(1,147

)

Stock repurchases

 

 

 

(1,850

)

 

 

 

(1,657

)

Proceeds from common stock transactions

 

 

 

321

 

 

 

 

415

 

Other

 

 

 

(21

)

 

 

 

(3

)

Cash flows from financing activities

 

 

 

(3,063

)

 

 

 

(2,893

)

 

 

 

 

 

 

 

 

 

 

 

Net change in Cash and cash equivalents

 

 

 

142

 

 

 

 

369

 

Cash and cash equivalents at beginning of period

 

 

 

1,154

 

 

 

 

1,000

 

Cash and cash equivalents at end of period

 

$

 

1,296

 

 

$

 

1,369

 

 

 

 

 

 

 

 

 

 

 

 

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. Beginning January 2017, we reorganized the product lines within our two reportable segments – Analog and Embedded Processing – to realign our business structure with the way our customers select and buy products. These changes had no effect on either our previously reported consolidated financial statements or on our reportable segment amounts. Our two reportable segments 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. As of January 1, 2017, we no longer recognize royalties as revenue; instead, they are now recorded as OI&E. We continue to receive royalties from arrangements involving license rights to our patent portfolio. Although we expect royalties to continue for many years, they are of decreasing significance to our core operations. Prior period amounts were not material.

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,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analog

$

 

2,698

 

 

$

 

2,323

 

 

$

 

7,365

 

 

$

 

6,246

 

Embedded Processing

 

 

931

 

 

 

 

795

 

 

 

 

2,602

 

 

 

 

2,279

 

Other

 

 

487

 

 

 

 

557

 

 

 

 

1,244

 

 

 

 

1,431

 

Total revenue

$

 

4,116

 

 

$

 

3,675

 

 

$

 

11,211

 

 

$

 

9,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analog

$

 

1,268

 

 

$

 

957

 

 

$

 

3,280

 

 

$

 

2,426

 

Embedded Processing

 

 

325

 

 

 

 

224

 

 

 

 

836

 

 

 

 

603

 

Other

 

 

195

 

 

 

 

227

 

 

 

 

404

 

 

 

 

494

 

Total operating profit

$

 

1,788

 

 

$

 

1,408

 

 

$

 

4,520

 

 

$

 

3,523

 

 

Operating profit amounts in the prior period have been recast as a result of our early adoption of a new accounting standard related to pension and other retiree benefit costs. See Note 2 for more information.

 

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, 2016. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2017, and September 30, 2016, and the Consolidated Balance Sheet as of September 30, 2017, 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, 2016. The results for the three- and nine-month periods are not necessarily indicative of a full year’s results.

6


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

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. We have reclassified certain amounts in the prior periods’ financial statements to conform to the current presentation, retrospectively applying the new accounting standard related to pension and other retiree benefit costs. See Changes in accounting standards – adopted standards for current period for further information.

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,

 

 

2017

 

 

2016

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

1,285

 

 

 

 

 

 

 

 

 

 

 

$

 

1,018

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for basic EPS calculation

$

 

1,274

 

 

 

988

 

 

$

 

1.29

 

 

$

 

1,006

 

 

 

1,003

 

 

$

 

1.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation plans

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

1,285

 

 

 

 

 

 

 

 

 

 

 

$

 

1,018

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(11

)