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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-03761
TEXAS INSTRUMENTS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)

Delaware75-0289970
(State of Incorporation)(I.R.S. Employer Identification No.)
12500 TI Boulevard, Dallas, Texas
75243
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code 214-479-3773


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $1.00TXNThe Nasdaq Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐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 ☒
917,942,130
Number of shares of Registrant’s common stock outstanding as of
October 13, 2020

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

 For Three Months EndedFor Nine Months Ended
Consolidated Statements of IncomeSeptember 30,September 30,
(Millions of dollars, except share and per-share amounts)2020201920202019
Revenue$3,817 $3,771 $10,385 $11,033 
Cost of revenue (COR)1,364 1,325 3,762 3,966 
Gross profit2,453 2,446 6,623 7,067 
Research and development (R&D)386 379 1,142 1,158 
Selling, general and administrative (SG&A)407 399 1,225 1,233 
Acquisition charges51 79 151 238 
Restructuring charges/other— — 24 (36)
Operating profit1,609 1,589 4,081 4,474 
Other income (expense), net (OI&E)27 34 151 122 
Interest and debt expense49 43 142 125 
Income before income taxes1,587 1,580 4,090 4,471 
Provision for income taxes234 155 183 524 
Net income$1,353 $1,425 $3,907 $3,947 
Earnings per common share (EPS):    
Basic$1.47 $1.51 $4.22 $4.19 
Diluted$1.45 $1.49 $4.17 $4.12 
Average shares outstanding (millions):    
Basic917 935 921 937 
Diluted929 950 933 953 
A portion of net income is allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents. Diluted EPS is calculated using the following:
Net income$1,353 $1,425 $3,907 $3,947 
Income allocated to RSUs(6)(8)(19)(25)
Income allocated to common stock for diluted EPS$1,347 $1,417 $3,888 $3,922 
See accompanying notes.    

2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 For Three Months EndedFor Nine Months Ended
Consolidated Statements of Comprehensive IncomeSeptember 30,September 30,
(Millions of dollars)2020201920202019
Net income$1,353 $1,425 $3,907 $3,947 
Other comprehensive income (loss)    
Net actuarial losses of defined benefit plans:    
Adjustments, net of tax effect of $3 and ($2); $4 and $1
(7)5 (8)— 
Recognized within net income, net of tax effect of ($2) and ($3); ($7) and ($10)
7 9 21 30 
Prior service credit of defined benefit plans:    
Recognized within net income, net of tax effect of $0 and $0; $0 and $0
(1)— (1)— 
Other comprehensive income (loss), net of taxes(1)14 12 30 
Total comprehensive income$1,352 $1,439 $3,919 $3,977 
See accompanying notes.    

3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

September 30,December 31,
Consolidated Balance Sheets20202019
(Millions of dollars, except share amounts)  
Assets  
Current assets:  
Cash and cash equivalents$2,822 $2,437 
Short-term investments2,696 2,950 
Accounts receivable, net of allowances of ($12) and ($8)
1,392 1,074 
Raw materials192 176 
Work in process959 916 
Finished goods921 909 
Inventories2,072 2,001 
Prepaid expenses and other current assets277 299 
Total current assets9,259 8,761 
Property, plant and equipment at cost5,698 5,740 
Accumulated depreciation(2,508)(2,437)
Property, plant and equipment3,190 3,303 
Long-term investments47 300 
Goodwill4,362 4,362 
Acquisition-related intangibles189 340 
Deferred tax assets299 197 
Capitalized software licenses133 69 
Overfunded retirement plans227 218 
Other long-term assets501 468 
Total assets$18,207 $18,018 
Liabilities and stockholders’ equity  
Current liabilities:  
Current portion of long-term debt$550 $500 
Accounts payable411 388 
Accrued compensation656 714 
Income taxes payable44 46 
Accrued expenses and other liabilities524 475 
Total current liabilities2,185 2,123 
Long-term debt6,247 5,303 
Underfunded retirement plans103 93 
Deferred tax liabilities69 78 
Other long-term liabilities1,278 1,514 
Total liabilities9,882 9,111 
Stockholders’ equity:  
Preferred stock, $25 par value. Authorized – 10,000,000 shares
  
Participating cumulative preferred – None issued
— — 
Common stock, $1 par value. Authorized – 2,400,000,000 shares
  
Shares issued – 1,740,815,939
1,741 1,741 
Paid-in capital2,257 2,110 
Retained earnings41,305 39,898 
Treasury common stock at cost  
Shares: September 30, 2020 – 823,174,578; December 31, 2019 – 808,784,381
(36,643)(34,495)
Accumulated other comprehensive income (loss), net of taxes (AOCI)(335)(347)
Total stockholders’ equity8,325 8,907 
Total liabilities and stockholders’ equity$18,207 $18,018 
  
See accompanying notes.  

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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 For Nine Months Ended
Consolidated Statements of Cash FlowsSeptember 30,
(Millions of dollars)20202019
Cash flows from operating activities  
Net income$3,907 $3,947 
Adjustments to net income:
Depreciation553 522 
Amortization of acquisition-related intangibles151 238 
Amortization of capitalized software45 40 
Stock compensation182 176 
Gains on sales of assets(3)(23)
Deferred taxes(115)31 
Increase (decrease) from changes in:
Accounts receivable(318)(135)
Inventories(71)177 
Prepaid expenses and other current assets— 285 
Accounts payable and accrued expenses60 (64)
Accrued compensation(48)(115)
Income taxes payable(316)(200)
Changes in funded status of retirement plans16 26 
Other(29)(10)
Cash flows from operating activities4,014 4,895 
Cash flows from investing activities  
Capital expenditures(437)(684)
Proceeds from asset sales3 30 
Purchases of short-term investments(3,435)(1,374)
Proceeds from short-term investments3,958 2,004 
Other(15)25 
Cash flows from investing activities74 1 
Cash flows from financing activities  
Proceeds from issuance of long-term debt1,498 1,491 
Repayment of debt(500)(750)
Dividends paid(2,489)(2,167)
Stock repurchases(2,538)(2,471)
Proceeds from common stock transactions356 491 
Other(30)(35)
Cash flows from financing activities(3,703)(3,441)
Net change in cash and cash equivalents385 1,455 
Cash and cash equivalents at beginning of period2,437 2,438 
Cash and cash equivalents at end of period$2,822 $3,893 
See accompanying notes.  

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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to financial statements
1. Description of business, including segment and geographic area information
We design, make and sell semiconductors to electronics designers and manufacturers all over the world. We have two reportable segments, which are established along major categories of products as follows:
•Analog – consisting of the following product lines: Power and Signal Chain.
•Embedded Processing – consisting of the following product lines: Connected Microcontrollers and Processors.
During the third quarter, we reorganized the product lines within our Analog segment to simplify our business structure into our Power and Signal Chain product lines. These changes had no effect on either our previously reported consolidated financial statements or on our reportable segment results.
We report the results of our remaining business activities in Other. Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments. Other includes DLP® products, calculators and custom ASIC products.
Our centralized manufacturing and support organizations, such as facilities, procurement and logistics, provide support to our operating segments, including those in Other. Costs incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided.
Segment information
For Three Months EndedFor Nine Months Ended
September 30,September 30,
 2020201920202019
Revenue:    
Analog$2,865 $2,674 $7,759 $7,726 
Embedded Processing651 724 1,850 2,310 
Other301 373 776 997 
Total revenue$3,817 $3,771 $10,385 $11,033 
Operating profit:
Analog$1,320 $1,231 $3,398 $3,427 
Embedded Processing187 233 494 747 
Other (a)102 125 189 300 
Total operating profit$1,609 $1,589 $4,081 $4,474 
(a)Includes acquisition charges and restructuring charges/other
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Geographic area information
The following geographic area information includes revenue, based on product shipment destination. The geographic revenue information does not necessarily reflect end demand by geography because our products tend to be shipped to the locations where our customers manufacture their products.
For Three Months EndedFor Nine Months Ended
September 30,September 30,
2020201920202019
Revenue:
United States$440 $504 $1,179 $1,468 
Asia (a)2,555 2,263 6,756 6,512 
Europe, Middle East and Africa578 699 1,648 2,151 
Japan140 198 523 607 
Rest of world104 107 279 295 
Total revenue$3,817 $3,771 $10,385 $11,033 
(a)Revenue from products shipped into China was $2.2 billion and $1.9 billion in the third quarters of 2020 and 2019, respectively, and $5.7 billion and $5.4 billion in the first nine months of 2020 and 2019, respectively, which includes shipments to customers that manufacture in China and then export end products to their customers around the world, as well as distributors that transship inventory through China to service other countries.

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, 2019. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2020 and 2019, and the Consolidated Balance Sheet as of September 30, 2020, 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, 2019. The results for the three- and nine-month periods are not necessarily indicative of a full year’s results.
Significant accounting policies and practices
Earnings per share (EPS)
We use the two-class method for calculating EPS because the restricted stock units (RSUs) we grant are participating securities containing non-forfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to RSUs and excluded from the calculation of income allocated to common stock.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Computation and reconciliation of earnings per common share are as follows (shares in millions):
 For Three Months Ended September 30,
 20202019
Net IncomeSharesEPSNet IncomeSharesEPS
Basic EPS:      
Net income$1,353   $1,425   
Income allocated to RSUs(6)  (9)  
Income allocated to common stock$1,347 917 $1.47 $1,416 935 $1.51 
Dilutive effect of stock compensation plans12  15 
Diluted EPS: 
Net income$1,353  $1,425 
Income allocated to RSUs(6) (8)
Income allocated to common stock$1,347 929 $1.45 $1,417 950 $1.49 
For Nine Months Ended September 30,
20202019
Net IncomeSharesEPSNet IncomeSharesEPS
Basic EPS:
Net income$3,907 $3,947 
Income allocated to RSUs(19)(25)
Income allocated to common stock$3,888 921 $4.22 $3,922 937 $4.19 
Dilutive effect of stock compensation plans12 16 
Diluted EPS:
Net income$3,907 $3,947 
Income allocated to RSUs(19)(25)
Income allocated to common stock$3,888 933 $4.17 $3,922 953 $4.12 
Potentially dilutive securities representing 3 million and 6 million shares of common stock that were outstanding during the third quarters of 2020 and 2019, respectively, and 4 million and 7 million shares outstanding during the first nine months of 2020 and 2019, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive.
Derivatives and hedging
We use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments.
We are exposed to variability in compensation charges related to certain deferred compensation obligations to employees. We use total return swaps to economically hedge this exposure and offset the related compensation expense, recognizing changes in the value of the swaps and the related deferred compensation liabilities in SG&A.
In connection with the issuance of long-term debt, we may use financial derivatives such as treasury-rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material.
We do not use derivatives for speculative or trading purposes.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Fair values of financial instruments
The fair values of our derivative financial instruments were not material as of September 30, 2020. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our deferred compensation liabilities, are carried at fair value. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. As of September 30, 2020, the carrying value of long-term debt, including the current portion, was $6.80 billion, and the estimated fair value was $7.73 billion. The estimated fair value is measured using broker-dealer quotes, which are Level 2 inputs. See Note 4 for a description of fair value and the definition of Level 2 inputs.
Changes in accounting standards – adopted standards for current period
We adopted the following Accounting Standards Updates (ASU) during the current period, none of which had a material impact on our financial position or results of operations.
ASU Description Adopted Date
ASU No. 2016-13Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsJanuary 1, 2020
ASU No. 2018-13Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value MeasurementJanuary 1, 2020
ASU No. 2018-15Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service ContractJanuary 1, 2020

3. Income taxes
Our estimated annual effective tax rate is about 14%, which does not include discrete tax items. This differs from the 21% statutory corporate tax rate due to the effect of U.S. tax benefits.
Provision for income taxes is based on the following:
For Three Months EndedFor Nine Months Ended
September 30,September 30,
 2020201920202019
Taxes calculated using the estimated annual effective tax rate$231 $257 $561 $715 
Discrete tax items3 (102)(378)(191)
Provision for income taxes$234 $155 $183 $524 
Actual effective tax rate15 %10 %4 %12 %
Our provision for income taxes for the first nine months of 2020 includes a $249 million discrete tax benefit in the second quarter for the settlement of a depreciation-related uncertain tax position. Accrued interest of $46 million related to this uncertain tax position was reversed in the second quarter and is included in OI&E.

4. Valuation of debt and equity investments and certain liabilities
Investments measured at fair value
Available-for-sale debt investments and trading securities are stated at fair value, which is generally based on market prices or broker quotes. See Fair-value considerations below. Unrealized gains and losses from available-for-sale debt securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets and any credit losses on available-for-sale debt securities are recorded as an allowance for credit losses with an offset recognized 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.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Other investments
Our other investments include equity-method investments and non-marketable equity investments, which are not measured at fair value. These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from equity-method investments are recognized in OI&E based on our ownership share of the investee’s financial results.
Non-marketable equity securities are measured at cost with adjustments for observable changes in price or impairments. Gains and losses on non-marketable equity investments are recognized in OI&E.
Details of our investments are as follows:
 September 30, 2020December 31, 2019
Cash and Cash EquivalentsShort-Term InvestmentsLong-Term InvestmentsCash and Cash EquivalentsShort-Term InvestmentsLong-Term Investments
Measured at fair value:      
Available-for-sale debt securities:      
Money market funds$911 $— $— $1,213 $— $— 
Corporate obligations341 256 — 174 1,216 — 
U.S. government agency and Treasury securities1,047 2,440 — 604 1,734 — 
Trading securities:
Mutual funds— — 16 — — 272 
Total2,299 2,696 16 1,991 2,950 272 
Other measurement basis:
Equity-method investments— — 27 — — 24 
Non-marketable equity investments— — 4 — — 4 
Cash on hand523 — — 446 — — 
Total$2,822 $2,696 $47 $2,437 $2,950 $300 
As of September 30, 2020 and December 31, 2019, unrealized gains and losses associated with our available-for-sale investments were not material. We did not recognize any credit losses related to available-for-sale investments for the first nine months of 2020 and 2019. All of our debt securities classified as available for sale as of September 30, 2020, have maturities within one year.
Proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $510 million and $220 million for the third quarters of 2020 and 2019, respectively, and $3.71 billion and $2.00 billion for the first nine months of 2020 and 2019, respectively. Gross realized gains and losses from these sales were not material.
During the first nine months of 2020, we entered into total return swaps to economically hedge the variability of certain deferred compensation obligations to employees. As a result, we received proceeds of $253 million from the sale of investments in mutual funds that were previously being utilized to offset this exposure.
Fair-value considerations
We measure and report certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The three-level hierarchy described below indicates the extent and level of judgment used to estimate fair-value measurements.
•Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date.
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
•Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. We utilize a third-party data service to provide Level 2 valuations. We verify these valuations for reasonableness relative to unadjusted quotes obtained from brokers or dealers based on observable prices for similar assets in active markets.
•Level 3 – Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models that utilize management estimates of market participant assumptions. As of September 30, 2020, and December 31, 2019, we had no Level 3 assets or liabilities.
The following are our assets and liabilities that were accounted for at fair value on a recurring basis. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value.
 September 30, 2020December 31, 2019
 Level 1Level 2TotalLevel 1Level 2Total
Assets:      
Money market funds$911 $— $911 $1,213 $— $1,213 
Corporate obligations— 597 597 — 1,390 1,390 
U.S. government agency and Treasury securities3,487 — 3,487 2,338 — 2,338 
Mutual funds16 — 16 272 — 272 
Total assets$4,414 $597 $5,011 $3,823 $1,390 $5,213 
Liabilities:
Deferred compensation$314 $— $314 $298 $— $298 
Total liabilities$314 $— $314 $298 $— $298 

5. Goodwill and acquisition-related intangibles
Goodwill was $4.36 billion as of September 30, 2020 and December 31, 2019. There was