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TEXAS INSTRUMENTS INC - Quarter Report: 2015 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-03761

 

TEXAS INSTRUMENTS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

Delaware

75-0289970

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

 

 

 

12500 TI Boulevard, Dallas, Texas

75243

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code 214-479-3773

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer

x

 

Accelerated filer

¨

Non-accelerated filer

¨

(Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

1,014,412,071

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

October 28, 2015

 

 

 

 


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Consolidated Statements of Income

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

 

 

 

For Three Months Ended

 

 

For Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

$

 

3,429

 

 

$

 

3,501

 

 

$

 

9,811

 

 

$

 

9,776

 

Cost of revenue (COR)

 

 

1,432

 

 

 

 

1,457

 

 

 

 

4,117

 

 

 

 

4,244

 

Gross profit

 

 

1,997

 

 

 

 

2,044

 

 

 

 

5,694

 

 

 

 

5,532

 

Research and development (R&D)

 

 

316

 

 

 

 

332

 

 

 

 

974

 

 

 

 

1,047

 

Selling, general and administrative (SG&A)

 

 

434

 

 

 

 

463

 

 

 

 

1,343

 

 

 

 

1,414

 

Acquisition charges

 

 

83

 

 

 

 

83

 

 

 

 

248

 

 

 

 

248

 

Restructuring charges/other

 

 

 

 

 

 

(9

)

 

 

 

(3

)

 

 

 

(24

)

Operating profit

 

 

1,164

 

 

 

 

1,175

 

 

 

 

3,132

 

 

 

 

2,847

 

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

 

 

6

 

 

 

 

3

 

 

 

 

13

 

 

 

 

12

 

Interest and debt expense

 

 

22

 

 

 

 

23

 

 

 

 

68

 

 

 

 

72

 

Income before income taxes

 

 

1,148

 

 

 

 

1,155

 

 

 

 

3,077

 

 

 

 

2,787

 

Provision for income taxes

 

 

350

 

 

 

 

329

 

 

 

 

927

 

 

 

 

791

 

Net income

$

 

798

 

 

$

 

826

 

 

$

 

2,150

 

 

$

 

1,996

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

 

.77

 

 

$

 

.77

 

 

$

 

2.05

 

 

$

 

1.84

 

Diluted

$

 

.76

 

 

$

 

.76

 

 

$

 

2.02

 

 

$

 

1.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

1,023

 

 

 

 

1,060

 

 

 

 

1,036

 

 

 

 

1,070

 

Diluted

 

 

1,035

 

 

 

 

1,074

 

 

 

 

1,049

 

 

 

 

1,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

$

 

.34

 

 

$

 

.30

 

 

$

 

1.02

 

 

$

 

.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

 

798

 

 

$

 

826

 

 

$

 

2,150

 

 

$

 

1,996

 

Income allocated to RSUs

 

 

(11

)

 

 

 

(13

)

 

 

 

(30

)

 

 

 

(31

)

Income allocated to common stock for diluted EPS

$

 

787

 

 

$

 

813

 

 

$

 

2,120

 

 

$

 

1,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Statements of Comprehensive Income

(Millions of dollars)

 

 

 

For Three Months Ended

 

 

For Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

$

 

798

 

 

$

 

826

 

 

$

 

2,150

 

 

$

 

1,996

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial gains (losses) of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

(33

)

 

 

 

28

 

 

 

 

(43

)

 

 

 

21

 

Recognized within Net income

 

 

13

 

 

 

 

17

 

 

 

 

40

 

 

 

 

38

 

Prior service cost of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

20

 

 

 

 

 

 

 

 

20

 

 

 

 

 

Recognized within Net income

 

 

 

 

 

 

(1

)

 

 

 

1

 

 

 

 

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized within Net income

 

 

1

 

 

 

 

 

 

 

 

1

 

 

 

 

1

 

Other comprehensive income (loss)

 

 

1

 

 

 

 

44

 

 

 

 

19

 

 

 

 

60

 

Total comprehensive income

$

 

799

 

 

$

 

870

 

 

$

 

2,169

 

 

$

 

2,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 

1,133

 

 

$

 

1,199

 

Short-term investments

 

 

1,602

 

 

 

 

2,342

 

Accounts receivable, net of allowances of ($16) and ($12)

 

 

1,481

 

 

 

 

1,246

 

Raw materials

 

 

108

 

 

 

 

101

 

Work in process

 

 

913

 

 

 

 

896

 

Finished goods

 

 

750

 

 

 

 

787

 

Inventories

 

 

1,771

 

 

 

 

1,784

 

Deferred income taxes

 

 

357

 

 

 

 

347

 

Prepaid expenses and other current assets

 

 

945

 

 

 

 

850

 

Total current assets

 

 

7,289

 

 

 

 

7,768

 

Property, plant and equipment at cost

 

 

5,742

 

 

 

 

6,266

 

Accumulated depreciation

 

 

(3,113

)

 

 

 

(3,426

)

Property, plant and equipment, net

 

 

2,629

 

 

 

 

2,840

 

Long-term investments

 

 

216

 

 

 

 

224

 

Goodwill, net

 

 

4,362

 

 

 

 

4,362

 

Acquisition-related intangibles, net

 

 

1,662

 

 

 

 

1,902

 

Deferred income taxes

 

 

160

 

 

 

 

172

 

Capitalized software licenses, net

 

 

54

 

 

 

 

83

 

Overfunded retirement plans

 

 

76

 

 

 

 

127

 

Other assets

 

 

92

 

 

 

 

244

 

Total assets

$

 

16,540

 

 

$

 

17,722

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

 

1,000

 

 

$

 

1,001

 

Accounts payable

 

 

367

 

 

 

 

437

 

Accrued compensation

 

 

615

 

 

 

 

651

 

Income taxes payable

 

 

84

 

 

 

 

71

 

Deferred income taxes

 

 

3

 

 

 

 

4

 

Accrued expenses and other liabilities

 

 

431

 

 

 

 

498

 

Total current liabilities

 

 

2,500

 

 

 

 

2,662

 

Long-term debt

 

 

3,132

 

 

 

 

3,641

 

Underfunded retirement plans

 

 

247

 

 

 

 

225

 

Deferred income taxes

 

 

308

 

 

 

 

399

 

Deferred credits and other liabilities

 

 

383

 

 

 

 

405

 

Total liabilities

 

 

6,570

 

 

 

 

7,332

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, $25 par value.  Authorized – 10,000,000 shares

 

 

 

 

 

 

 

 

 

Participating cumulative preferred.  None issued.

 

 

 

 

 

 

 

Common stock, $1 par value.  Authorized – 2,400,000,000 shares

 

 

 

 

 

 

 

 

 

Shares issued – 1,740,815,939

 

 

1,741

 

 

 

 

1,741

 

Paid-in capital

 

 

1,562

 

 

 

 

1,368

 

Retained earnings

 

 

30,731

 

 

 

 

29,653

 

Treasury common stock at cost

 

 

 

 

 

 

 

 

 

Shares: September 30, 2015 – 721,186,352; December 31, 2014 – 694,189,127

 

 

(23,551

)

 

 

 

(21,840

)

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

 

 

(513

)

 

 

 

(532

)

Total stockholders’ equity

 

 

9,970

 

 

 

 

10,390

 

Total liabilities and stockholders’ equity

$

 

16,540

 

 

$

 

17,722

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

4


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Millions of dollars)

 

 

For Nine Months Ended

 

 

September 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

Net income

$

 

2,150

 

 

$

 

1,996

 

Adjustments to Net income:

 

 

 

 

 

 

 

 

 

Depreciation

 

 

594

 

 

 

 

639

 

Amortization of acquisition-related intangibles

 

 

240

 

 

 

 

241

 

Amortization of capitalized software

 

 

38

 

 

 

 

45

 

Stock-based compensation

 

 

228

 

 

 

 

217

 

Gains on sales of assets

 

 

(3

)

 

 

 

(44

)

Deferred income taxes

 

 

(106

)

 

 

 

(84

)

Increase (decrease) from changes in:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(241

)

 

 

 

(272

)

Inventories

 

 

13

 

 

 

 

(20

)

Prepaid expenses and other current assets

 

 

89

 

 

 

 

81

 

Accounts payable and accrued expenses

 

 

(190

)

 

 

 

(224

)

Accrued compensation

 

 

(37

)

 

 

 

51

 

Income taxes payable

 

 

21

 

 

 

 

(90

)

Changes in funded status of retirement plans

 

 

65

 

 

 

 

73

 

Other

 

 

(23

)

 

 

 

11

 

Cash flows from operating activities

 

 

2,838

 

 

 

 

2,620

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(387

)

 

 

 

(260

)

Proceeds from asset sales

 

 

10

 

 

 

 

46

 

Purchases of short-term investments

 

 

(1,713

)

 

 

 

(2,170

)

Proceeds from short-term investments

 

 

2,455

 

 

 

 

2,491

 

Other

 

 

8

 

 

 

 

7

 

Cash flows from investing activities

 

 

373

 

 

 

 

114

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

498

 

 

 

 

498

 

Repayment of debt

 

 

(1,000

)

 

 

 

(1,000

)

Dividends paid

 

 

(1,058

)

 

 

 

(967

)

Stock repurchases

 

 

(2,114

)

 

 

 

(2,133

)

Proceeds from common stock transactions

 

 

332

 

 

 

 

476

 

Excess tax benefit from share-based payments

 

 

68

 

 

 

 

75

 

Other

 

 

(3

)

 

 

 

(4

)

Cash flows from financing activities

 

 

(3,277

)

 

 

 

(3,055

)

 

 

 

 

 

 

 

 

 

 

Net change in Cash and cash equivalents

 

 

(66

)

 

 

 

(321

)

Cash and cash equivalents at beginning of period

 

 

1,199

 

 

 

 

1,627

 

Cash and cash equivalents at end of period

$

 

1,133

 

 

$

 

1,306

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

5


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Notes to financial statements

1. Description of business, including segment information

We design, make and sell semiconductors to electronics designers and manufacturers all over the world. We have two reportable segments, which are established along major categories of products as follows:

 

·

Analog – consists of the following product lines: High Volume Analog & Logic; Power Management; High Performance Analog; and Silicon Valley Analog, which consists primarily of products that we acquired through our purchase of National Semiconductor Corporation (National) in 2011.

 

·

Embedded Processing – consists of the following product lines: Processors, Microcontrollers and Connectivity.

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

Segment information

 

 

For Three Months Ended

 

 

For Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analog

$

 

2,182

 

 

$

 

2,149

 

 

$

 

6,266

 

 

$

 

5,981

 

Embedded Processing

 

 

725

 

 

 

 

711

 

 

 

 

2,087

 

 

 

 

2,070

 

Other

 

 

522

 

 

 

 

641

 

 

 

 

1,458

 

 

 

 

1,725

 

Total revenue

$

 

3,429

 

 

$

 

3,501

 

 

$

 

9,811

 

 

$

 

9,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analog

$

 

812

 

 

$

 

802

 

 

$

 

2,261

 

 

$

 

1,964

 

Embedded Processing

 

 

174

 

 

 

 

114

 

 

 

 

432

 

 

 

 

270

 

Other

 

 

178

 

 

 

 

259

 

 

 

 

439

 

 

 

 

613

 

Total operating profit

$

 

1,164

 

 

$

 

1,175

 

 

$

 

3,132

 

 

$

 

2,847

 

 

We use centralized manufacturing and support organizations, such as facilities, procurement and logistics, to provide support to our operating segments. Costs incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided.

 

 

2. Basis of presentation and significant accounting policies and practices

Basis of presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2014. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2015 and 2014, and the Consolidated Balance Sheet as of September 30, 2015, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Because the consolidated interim financial statements do not include all of the information and notes required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2014. The results for the three- 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,

 

 

2015

 

 

2014

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

798

 

 

 

 

 

 

 

 

 

 

 

$

 

826

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for basic EPS calculation

$

 

787

 

 

 

1,023

 

 

$

 

.77

 

 

$

 

813

 

 

 

1,060

 

 

$

 

.77

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

798

 

 

 

 

 

 

 

 

 

 

 

$

 

826

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for diluted EPS calculation

$

 

787

 

 

 

1,035

 

 

$

 

.76

 

 

$

 

813

 

 

 

1,074

 

 

$

 

.76

 

 

 

For Nine Months Ended September 30,

 

 

2015

 

 

2014

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

2,150

 

 

 

 

 

 

 

 

 

 

 

$

 

1,996

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(31

)

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for basic EPS calculation

$

 

2,119

 

 

 

1,036

 

 

$

 

2.05

 

 

$

 

1,965

 

 

 

1,070

 

 

$

 

1.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

2,150

 

 

 

 

 

 

 

 

 

 

 

$

 

1,996

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(30

)

 

 

 

 

 

 

 

 

 

 

 

 

(31

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for diluted EPS calculation

$

 

2,120

 

 

 

1,049

 

 

$

 

2.02

 

 

$

 

1,965

 

 

 

1,085

 

 

$

 

1.81

 

 

Potentially dilutive securities representing 14 million and 11 million shares of common stock that were outstanding during the third quarters of 2015 and 2014, respectively, and 12 million and 11 million shares outstanding during the first nine months of 2015 and 2014, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive.

Derivatives and hedging

We use derivative financial instruments to manage exposure to foreign currency exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these

 

7


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments.

In connection with the issuance of long-term debt, we use financial derivatives such as treasury rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material.

We do not use derivatives for speculative or trading purposes.

Fair values of financial instruments

The fair values of our derivative financial instruments were not significant as of September 30, 2015. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our deferred compensation liabilities, are carried at fair value and are discussed in Note 6. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. The carrying value of our long-term debt approximates its fair value as measured using broker-dealer quotes, which are based on Level 2 inputs. See Note 6 for the definition of Level 2 inputs.

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. In July 2015, the FASB deferred the effective date by one year to December 15, 2017, for annual and interim reporting periods beginning after that date. This standard also permits early adoption, but not before the original effective date of December 15, 2016. We are currently evaluating the potential impact of this standard on our financial position and results of operations.

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

In April and August 2015, respectively, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. These standards require that costs associated with the issuance of debt, except for costs associated with line-of-credit arrangements, be reported as a direct reduction of the related debt balance. Previously, such costs were recorded as deferred assets and amortized over the term of the debt issued. Costs associated with line-of-credit arrangements may continue to be recorded as deferred assets and amortized over the term of the arrangement. ASU No. 2015-03 is effective for interim and annual periods beginning January 1, 2016, but early adoption is permitted. We plan to adopt this standard for the year ended December 31, 2015. Upon adoption, this standard will be applied retrospectively to all prior periods presented. ASU No. 2015-15 is effective immediately. These standards will have no impact on the Consolidated Statements of Income and will have an immaterial impact from the reclassifications on our Consolidated Balance Sheets.

Also in April 2015, the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which provides guidance on whether a cloud-computing arrangement contains a software license, and whether that license should be accounted for separately as an asset or solely as a service contract. This standard also aligns the accounting for licenses of internal-use software with the accounting for licenses of other acquired intangible assets. This standard is effective for interim and annual periods beginning January 1, 2016, but early adoption is permitted. It may be adopted either prospectively to all arrangements entered into or materially modified after the effective date, or retrospectively. We are currently evaluating the potential impact of this standard on our financial position and results of operations and determining which adoption method to use.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires that inventory be measured at the lower of cost or net realizable value rather than the lower of cost or market. This standard must be applied on a prospective basis, and is effective for annual and interim reporting periods beginning January 1, 2017. Since early adoption is permitted, we plan to implement this standard effective January 1, 2016, and expect no material impact on our financial position or results of operations.

 

 

 

8


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

3. Acquisition charges

We incurred various costs as a result of the 2011 acquisition of National that are included in Other for segment reporting purposes, consistent with how management measures the performance of its segments. For the three and nine months ended September 30, 2015 and 2014, Acquisition charges were primarily from the ongoing amortization of intangible assets resulting from the National acquisition. See Note 7 for more information.

 

 

4. Restructuring charges/other

Restructuring charges/other is recognized in Other for segment reporting purposes and consists of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For Three Months Ended

 

 

For Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Restructuring charges by action:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 actions (a)

$

 

 

 

$

 

(3

)

 

$

 

(1

)

 

$

 

25

 

Prior actions (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

Total restructuring charges

 

 

 

 

 

 

(3

)

 

 

 

(1

)

 

 

 

19

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains on sales of assets

 

 

 

 

 

 

(8

)

 

 

 

(1

)

 

 

 

(47

)

Other

 

 

 

 

 

 

2

 

 

 

 

(1

)

 

 

 

4

 

Restructuring charges/other

$

 

 

 

$

 

(9

)

 

$

 

(3

)

 

$

 

(24

)

 

(a)

Includes changes in estimates.

2013 actions

We announced in January 2014 cost-saving actions in Embedded Processing and in Japan to reduce expenses and focus our investments on markets with greater potential for sustainable growth and strong long-term returns. These actions are now complete.  

Prior actions

Prior to 2013, we announced a restructuring of our former Wireless business and the closures of manufacturing facilities in Houston, Texas, and Hiji, Japan. These actions were completed in 2013. 

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

 

 

2013 Actions

 

 

Prior Actions

 

 

 

 

 

 

 

Severance

 

 

Other

 

 

Severance

 

 

 

 

 

 

 

and Benefits

 

 

Charges

 

 

and Benefits

 

 

Total

 

Accrual as of December 31, 2014

$

 

22

 

 

$

 

9

 

 

$

 

26

 

 

$

 

57

 

Restructuring charges (a)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Payments

 

 

(11

)

 

 

 

(4

)

 

 

 

(18

)

 

 

 

(33

)

Remaining accrual as of September 30, 2015

$

 

10

 

 

$

 

5

 

 

$

 

8

 

 

$

 

23

 

 

(a)

Includes changes in estimates.

 

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

Other

Gains on sales of assets

During the first nine months of 2014, we recognized $47 million of gains on sales of assets. This consisted of $30 million associated with the sale of our site in Nice, France, and $17 million of asset sales associated primarily with the closure of our Houston, Texas, and Hiji, Japan, manufacturing facilities.

 

 

 

9


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

5. Income taxes

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

 

 

6. Valuation of debt and equity investments and certain liabilities

Debt and equity investments

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

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

We classify certain mutual funds as trading securities. These mutual funds hold a variety of debt and equity investments intended to generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual funds and the related deferred compensation liabilities in SG&A.

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

Details of our investments are as follows:

 

 

September 30, 2015

 

 

December 31, 2014

 

 

Cash and Cash

 

 

Short-Term

 

 

Long-Term

 

 

Cash and Cash

 

 

Short-Term

 

 

Long-Term

 

 

Equivalents

 

 

Investments

 

 

Investments

 

 

Equivalents

 

 

Investments

 

 

Investments

 

Measured at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

 

618

 

 

$

 

 

 

$

 

 

 

$

 

522

 

 

$

 

 

 

$

 

 

Corporate obligations

 

 

101

 

 

 

 

240

 

 

 

 

 

 

 

 

97

 

 

 

 

390

 

 

 

 

 

U.S. Government agency and Treasury securities

 

 

165

 

 

 

 

1,362

 

 

 

 

 

 

 

 

365

 

 

 

 

1,952

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

 

 

 

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

185

 

Total

 

 

884

 

 

 

 

1,602

 

 

 

 

180

 

 

 

 

984

 

 

 

 

2,342

 

 

 

 

185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other measurement basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-method investments

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

27

 

Cost-method investments

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

12

 

Cash on hand

 

 

249

 

 

 

 

 

 

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

 

Total

$

 

1,133

 

 

$

 

1,602

 

 

$

 

216

 

 

$

 

1,199

 

 

$

 

2,342

 

 

$

 

224

 

 

As of September 30, 2015, and December 31, 2014, unrealized gains and losses associated with our available-for-sale investments were not significant. We did not recognize any credit losses related to available-for-sale investments for the nine months ended September 30, 2015 and 2014.

For the nine months ended September 30, 2015 and 2014, the proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $2.46 billion and $2.49 billion, respectively. Gross realized gains and losses from these sales were not significant.

 

10


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

The following table presents the aggregate maturities of investments in debt securities classified as available for sale as of September 30, 2015:

 

Due

 

Fair Value

 

One year or less

 

$

 

2,451

 

One to two years

 

 

 

35

 

 

Gross realized gains and losses from sales of long-term investments and other-than-temporary declines and impairments in values of these investments were not material for the nine months ended September 30, 2015 and 2014.

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 discussed 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.

 

·

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, 2015, and December 31, 2014, we had no Level 3 assets or liabilities, other than certain assets held by our postretirement plans.

The following are our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2015, and December 31, 2014. 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.

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

Level 1

 

 

Level 2

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

 

618

 

 

$

 

618

 

 

$

 

 

Corporate obligations

 

 

341

 

 

 

 

 

 

 

 

341

 

U.S. Government agency and Treasury securities

 

 

1,527

 

 

 

 

1,307

 

 

 

 

220

 

Mutual funds

 

 

180

 

 

 

 

180

 

 

 

 

 

Total assets

$

 

2,666

 

 

$

 

2,105

 

 

$

 

561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation

$

 

191

 

 

$

 

191

 

 

$

 

 

Total liabilities

$

 

191

 

 

$

 

191

 

 

$

 

 

 

 

11


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

Level 1

 

 

Level 2

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

 

522

 

 

$

 

522

 

 

$

 

 

Corporate obligations

 

 

487

 

 

 

 

 

 

 

 

487

 

U.S. Government agency and Treasury securities

 

 

2,317

 

 

 

 

1,762

 

 

 

 

555

 

Mutual funds

 

 

185

 

 

 

 

185

 

 

 

 

 

Total assets

$

 

3,511

 

 

$

 

2,469

 

 

$

 

1,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation

$

 

202

 

 

$

 

202

 

 

$

 

 

Total liabilities

$

 

202

 

 

$

 

202

 

 

$

 

 

 

 

7. Goodwill and acquisition-related intangibles

Goodwill was $4.36 billion net of accumulated impairment of $90 million as of September 30, 2015, and December 31, 2014. There was no impairment of goodwill during the nine months ended September 30, 2015 and 2014.

Components of acquisition-related intangible assets are as follows:

 

 

 

Amortization

 

September 30, 2015

 

 

December 31, 2014

 

 

 

Period

 

Gross Carrying

 

 

Accumulated

 

 

 

 

 

 

 

Gross Carrying

 

 

Accumulated

 

 

 

 

 

 

 

 

(Years)

 

Amount

 

 

Amortization

 

 

Net

 

 

Amount

 

 

Amortization

 

 

Net

 

Developed technology

 

7 - 10

 

$

 

2,131

 

 

$

 

874

 

 

$

 

1,257

 

 

$

 

2,135

 

 

$

 

714

 

 

$

 

1,421

 

Customer relationships

 

8

 

 

 

810

 

 

 

 

406

 

 

 

 

404

 

 

 

 

810

 

 

 

 

330

 

 

 

 

480

 

Other intangibles

 

5

 

 

 

3

 

 

 

 

2

 

 

 

 

1

 

 

 

 

3

 

 

 

 

2

 

 

 

 

1

 

Total

 

 

 

$

 

2,944

 

 

$

 

1,282

 

 

$

 

1,662

 

 

$

 

2,948

 

 

$

 

1,046

 

 

$

 

1,902

 

 

Amortization of acquisition-related intangibles was $80 million for the third quarters of 2015 and 2014, and $240 million and $241 million for the first nine months of 2015 and 2014, respectively, primarily related to developed technology. Fully amortized assets are written off against accumulated amortization.

 

 

8. Postretirement benefit plans

Expense related to defined benefit and retiree health care benefit plans was as follows:

 

 

U.S.

 

 

U.S.

 

 

Non-U.S.

 

 

Defined Benefit

 

 

Retiree Health Care

 

 

Defined Benefit

 

For Three Months Ended September 30,

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Service cost

$

 

6

 

 

$

 

6

 

 

$

 

1

 

 

$

 

1

 

 

$

 

9

 

 

$

 

9

 

Interest cost

 

 

10

 

 

 

 

11

 

 

 

 

5

 

 

 

 

6

 

 

 

 

13

 

 

 

 

17

 

Expected return on plan assets

 

 

(12

)

 

 

 

(10

)

 

 

 

(5

)

 

 

 

(5

)

 

 

 

(19

)

 

 

 

(21

)

Recognized net actuarial loss

 

 

4

 

 

 

 

6

 

 

 

 

2

 

 

 

 

1

 

 

 

 

6

 

 

 

 

6

 

Amortization of prior service cost (credit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

Net periodic benefit costs

 

 

8

 

 

 

 

13

 

 

 

 

3

 

 

 

 

4

 

 

 

 

9

 

 

 

 

11

 

Settlement losses

 

 

7

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Curtailment gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Total, including other postretirement (gains) losses

$

 

15

 

 

$

 

24

 

 

$

 

3

 

 

$

 

4

 

 

$

 

9

 

 

$

 

10

 

 

12


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

U.S.

 

 

U.S.

 

 

Non-U.S.

 

 

Defined Benefit

 

 

Retiree Health Care

 

 

Defined Benefit

 

For Nine Months Ended September 30,

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Service cost

$

 

17

 

 

$

 

16

 

 

$

 

4

 

 

$

 

3

 

 

$

 

26

 

 

$

 

29

 

Interest cost

 

 

31

 

 

 

 

33

 

 

 

 

15

 

 

 

 

17

 

 

 

 

40

 

 

 

 

52

 

Expected return on plan assets

 

 

(36

)

 

 

 

(31

)

 

 

 

(16

)

 

 

 

(15

)

 

 

 

(57

)

 

 

 

(62

)

Recognized net actuarial loss

 

 

14

 

 

 

 

19

 

 

 

 

6

 

 

 

 

5

 

 

 

 

18

 

 

 

 

19

 

Amortization of prior service cost (credit)

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

3

 

 

 

 

(1

)

 

 

 

(1

)

Net periodic benefit costs

 

 

26

 

 

 

 

37

 

 

 

 

12

 

 

 

 

13

 

 

 

 

26

 

 

 

 

37

 

Settlement losses

 

 

19

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

1

 

Curtailment gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

Total, including other postretirement (gains) losses

$

 

45

 

 

$

 

51

 

 

$

 

12

 

 

$

 

13

 

 

$

 

28

 

 

$

 

36

 

 

 

9. Debt and lines of credit

Short-term borrowings

We maintain a line of credit to support commercial paper borrowings, if any, and to provide additional liquidity through bank loans. As of September 30, 2015, we had a variable-rate revolving credit facility from a consortium of investment-grade banks that allows us to borrow up to $2 billion until March 2020. The interest rate on borrowings under this credit facility, if drawn, is indexed to the applicable London Interbank Offered Rate (LIBOR). As of September 30, 2015, our credit facility was undrawn and we had no commercial paper outstanding.

Long-term debt

We retired $250 million of maturing debt in April 2015 and another $750 million in August 2015.

In May 2015, we issued a principal amount of $500 million of fixed-rate, long-term debt due in 2020. We incurred $3 million of issuance and other related costs, which are amortized to Interest and debt expense over the term of the debt. The proceeds of the offering were $498 million, net of the original issuance discount, and were used toward the retirement of a portion of the debt that matured in August 2015.

Long-term debt outstanding is as follows:

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Notes due 2015 at 3.95% (assumed with National acquisition)

$

 

 

 

$

 

250

 

Notes due 2015 at 0.45%

 

 

 

 

 

 

750

 

Notes due 2016 at 2.375%

 

 

1,000

 

 

 

 

1,000

 

Notes due 2017 at 6.60% (assumed with National acquisition)

 

 

375

 

 

 

 

375

 

Notes due 2017 at 0.875%

 

 

250

 

 

 

 

250

 

Notes due 2018 at 1.00%

 

 

500

 

 

 

 

500

 

Notes due 2019 at 1.65%

 

 

750

 

 

 

 

750

 

Notes due 2020 at 1.75%

 

 

500

 

 

 

 

 

Notes due 2021 at 2.75%

 

 

250

 

 

 

 

250

 

Notes due 2023 at 2.25%

 

 

500

 

 

 

 

500

 

Total debt

 

 

4,125

 

 

 

 

4,625

 

Net unamortized premium

 

 

7

 

 

 

 

17

 

Total debt, including net unamortized premium

 

 

4,132

 

 

 

 

4,642

 

Current portion of long-term debt

 

 

(1,000

)

 

 

 

(1,001

)

Long-term debt

$

 

3,132

 

 

$

 

3,641

 

 

Interest and debt expense was $22 million and $23 million for the third quarters of 2015 and 2014, respectively, and $68 million and $72 million for the first nine months of 2015 and 2014, respectively. This was net of the amortization of the debt premium and other debt issuance costs. Capitalized interest was not material.

 

 

 

13


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

10. Contingencies

Indemnification guarantees

We routinely sell products with an intellectual property indemnification included in the terms of sale. Historically, we have had only minimal, infrequent losses associated with these indemnities. Consequently, we cannot reasonably estimate any future liabilities that may result.

Warranty costs/product liabilities

We accrue for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or product liability. Historically, we have experienced a low rate of payments on product claims. Although we cannot predict the likelihood or amount of any future claims, we do not believe they will have a material adverse effect on our financial condition, results of operations or liquidity. Consistent with general industry practice, we enter into formal contracts with certain customers that include negotiated warranty remedies. Typically, under these agreements our warranty for semiconductor products includes three years of coverage; an obligation to repair, replace or refund; and a maximum payment obligation tied to the price paid for our products. In some cases, product claims may exceed the price of our products.

General

We are subject to various legal and administrative proceedings. Although it is not possible to predict the outcome of these matters, we believe that the results of these proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity.

 

 

11. Supplemental financial information

 

Details on amounts reclassified out of Accumulated other comprehensive income (loss), net of taxes, to Net income

Our Consolidated Statements of Comprehensive Income include items that have been recognized within Net income during the periods ended September 30, 2015 and 2014. The table below details where on the Consolidated Statements of Income these transactions are recorded.

 

 

 

For Three Months Ended

 

 

For Nine Months Ended

 

 

Impact to

 

 

September 30,

 

 

September 30,

 

 

Related Statement

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

of Income Line

Net actuarial gains (losses) of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized net actuarial loss and Settlement losses (a)

 

$

 

19

 

 

$

 

25

 

 

$

 

59

 

 

$

 

58

 

 

Increase to Pension expense (b)

Tax effect

 

 

 

(6

)

 

 

 

(8

)

 

 

 

(19

)

 

 

 

(20

)

 

Decrease to Provision for income taxes

Recognized within Net income, net of taxes

 

$

 

13

 

 

$

 

17

 

 

$

 

40

 

 

$

 

38

 

 

Decrease to Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost (credit) and Curtailment gain (a)

 

$

 

 

 

$

 

(1

)

 

$

 

2

 

 

$

 

 

 

(Decrease) increase to Pension expense (b)

Tax effect

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

Decrease to Provision for income taxes

Recognized within Net income, net of taxes

 

$

 

 

 

$

 

(1

)

 

$

 

1

 

 

$

 

 

 

(Increase) decrease to Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of treasury rate locks

 

$

 

1

 

 

$

 

 

 

$

 

1

 

 

$

 

1

 

 

Increase to Interest and debt expense

Tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease to Provision for income taxes

Recognized within Net income, net of taxes

 

$

 

1

 

 

$

 

 

 

$

 

1

 

 

$

 

1

 

 

Decrease to Net income

 

(a)

Detailed in Note 8.

(b)

Pension expense is included in COR, R&D, SG&A and Restructuring charges/other in the Consolidated Statements of Income.

 

 

 

 

14


 

ITEM 2. Management’s discussion and analysis of financial condition and results of operations.

Overview

We design, make and sell semiconductors to electronics designers and manufacturers all over the world. Our business model is carefully constructed around the following attributes:

 

·

Industry’s broadest portfolio of differentiated analog and embedded processing semiconductors. Our customers’ design engineers need at least one, and most times multiple, chips for their systems.  The breadth of our portfolio means we can solve more of these needs than can our competitors, which gives us access to more customers and the opportunity to generate more revenue per system. We invest more than $1 billion each year to develop new products for our portfolio.

 

·

A strong foundation of manufacturing technology and low-cost production. We invest in manufacturing technologies that differentiate the features of our semiconductors, and we do most of our own production in-house, as opposed to outsourcing it.  This ability to directly control our manufacturing helps ensure a consistent supply of products for our customers.  We produce billions of semiconductors each year on a mixture of 150-, 200- and 300-millimeter wafers, and we are able to keep costs low for manufacturing facilities and equipment because our analog and much of our embedded processing semiconductors can be made using mature assets that we acquire ahead of demand when their prices are most attractive. In 2014, we produced approximately 25 percent of our Analog semiconductors on 300-millimeter wafers, the industry’s largest wafers, which have a 40 percent cost advantage per unpackaged chip over 200-millimeter wafers. The majority of our future Analog growth will be produced on 300-millimeter wafers, which will be meaningful to the growth of our margins and cash flow over the long term.

 

·

Industry’s largest market channels. Our global sales force is larger than those of our competitors, and the breadth of our portfolio attracts tens of millions of visits to our web site each year where customers often begin their initial product searches and design-in journey.  These capabilities combine to provide us unique access to more than 100,000 customers.

 

·

Diversity and longevity in our products and in the markets we serve. Together, the attributes above result in diverse and long-lived positions that deliver high terminal value to our shareholders. Because of the breadth of our portfolio we are not dependent on any single product, and because of the breadth of our markets we are not dependent on any single application or customer. Some of our products generate revenue for decades, which strengthens the return on our investments.

These attributes have resulted in consistent share gains and free cash flow growth, and they put us in a unique class of companies with the ability to grow, generate cash, and return that cash to shareholders.  

Management’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document.  In the following discussion of our results of operations:

 

·

All dollar amounts in the tables are stated in millions of U.S. dollars.

 

·

When we discuss our results:

 

o

Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced by fluctuations in shipment volumes.

 

o

New products tend not to have a significant impact on our revenue in any given period because we sell such a large number of products.

 

o

From time to time, our revenue and gross profit are affected by changes in demand for higher-priced or lower-priced products, which we refer to as changes in the “mix” of products shipped.

 

o

Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed.  When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease.  Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit margins increase.  Increases and decreases in factory loadings tend to correspond to increases and decreases in demand.

 

·

Our segments represent groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results.  See Note 1 to the financial statements for more information regarding our segments.

 

15


 

Performance summary

Our third-quarter revenue was $3.43 billion, net income was $798 million and earnings per share (EPS) were $0.76.

Revenue declined 2 percent from a year ago. While our overall demand remained weak, revenue was stronger than we expected. Our core businesses of Analog and Embedded Processing each grew year over year. Together, they comprised 85 percent of third-quarter revenue and have delivered nine consecutive quarters of year-over-year growth. Gross margin was 58.2 percent of revenue, reflecting the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter analog production.

Our cash flow from operations once again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 4 percent from a year ago to $3.6 billion. This represents 28 percent of revenue, up from 27 percent a year ago, and is consistent with our targeted range of 20-30 percent of revenue.

We have returned $4.2 billion to shareholders in the past 12 months through stock repurchases and dividends. In September, we announced a quarterly dividend increase of $0.04 per share, a 12 percent increase. This marked 12 consecutive years of dividend increases. We also announced a $7.5 billion increase to our share buyback authorization. Our strategy to return to shareholders 100 percent of free cash flow plus proceeds from exercises of equity compensation minus net debt retirement reflects our confidence in the long-term sustainability of our business model.

Our balance sheet remains strong with $2.7 billion of cash and short-term investments at the end of the quarter, 82 percent of which was owned by the company’s U.S. entities. Inventory ended the quarter at 111 days.

Free cash flow is a non-GAAP financial measure. For a reconciliation to GAAP and an explanation of the reason for providing this non-GAAP measure, see the Non-GAAP financial information section after the Liquidity and capital resources section.

Results of operations – third-quarter 2015 compared with third-quarter 2014

Revenue decreased $72 million due to lower revenue from Other. Analog and Embedded Processing revenue grew.

Gross profit of $2.00 billion was down 2 percent due to lower revenue. As a percentage of revenue, gross profit was 58.2 percent compared with 58.4 percent.

Operating expenses were $316 million for R&D and $434 million for SG&A. R&D expense decreased $16 million, or 5 percent, and SG&A expense decreased $29 million, or 6 percent. Both comparisons reflect savings from ongoing efforts across the company to align costs with growth opportunities, including the completed restructuring actions in Embedded Processing and Japan. These decreases were partially offset by higher compensation-related costs.

Acquisition charges associated with our 2011 acquisition of National were unchanged at $83 million. These non-cash charges were from the ongoing amortization of intangible assets.

Operating profit was $1.16 billion, or 33.9 percent of revenue, compared with $1.18 billion, or 33.6 percent of revenue.

Quarterly income taxes are calculated using the estimated annual effective tax rate. At the end of the third quarter, our estimated annual effective tax rate for 2015 was about 30 percent. The tax rate is based on current tax law and does not include the effect of the federal research tax credit, which expired at the end of 2014. Our annual effective tax rate benefits from lower tax rates (compared to the U.S. statutory rate) applicable to our operations in many of the jurisdictions in which we operate and from U.S. tax benefits. These lower non-U.S. tax rates are generally statutory in nature, without expiration and available to companies that operate in those taxing jurisdictions.

Our tax provision was $350 million compared with $329 million. The increase was due to a lower benefit from non-U.S. tax rates.

 

16


 

Third-quarter 2015 segment results

Our segment results compared with the year-ago quarter are as follows:

Analog (includes High Volume Analog & Logic (HVAL), Power Management (Power), High Performance Analog (HPA) and Silicon Valley Analog (SVA))

 

 

 

3Q15

 

 

3Q14

 

 

Change

 

Revenue

 

$

2,182

 

 

$

2,149

 

 

 

2

%

Operating profit

 

 

812

 

 

 

802

 

 

 

1

%

Operating profit % of revenue

 

 

37.2

%

 

 

37.3

%

 

 

 

 

 

Analog revenue increased due to HVAL, and to a lesser extent, SVA. Power was about even and HPA declined. HPA revenue decreased due to the mix of products shipped. Operating profit increased.

Embedded Processing (includes Processors, Microcontrollers and Connectivity)

 

 

 

3Q15

 

 

3Q14

 

 

Change

 

Revenue

 

$

725

 

 

$

711

 

 

 

2

%

Operating profit

 

 

174

 

 

 

114

 

 

 

53

%

Operating profit % of revenue

 

 

24.0

%

 

 

16.0

%

 

 

 

 

 

Embedded Processing revenue increased due to Microcontrollers and, to a lesser extent, Connectivity. The increase was partially offset by decreased revenue from Processors due to the mix of products shipped. Operating profit increased due to lower operating expenses and, to a lesser extent, higher gross profit.

Other (includes DLP® products, custom ASIC products, calculators and royalties)

 

 

 

3Q15

 

 

3Q14

 

 

Change

 

Revenue

 

$

522

 

 

$

641

 

 

 

-19

%

Operating profit*

 

 

178

 

 

 

259

 

 

 

-31

%

Operating profit % of revenue

 

 

34.1

%

 

 

40.4

%

 

 

 

 

 

*    Includes Acquisition charges and Restructuring charges/other

 

Other revenue decreased due to, in declining order, custom ASIC products, DLP products and calculators. Operating profit decreased due to lower revenue and associated gross profit.

Results of operations – first nine months of 2015 compared with first nine months of 2014

Revenue of $9.81 billion was about even, as higher revenue from Analog and Embedded Processing was offset by lower revenue from Other.  Analog and Embedded Processing comprised 85 percent of revenue compared with 82 percent.

Gross profit was $5.69 billion, an increase of $162 million, or 3 percent, due to lower manufacturing costs.

R&D expense of $974 million decreased $73 million, or 7 percent, and SG&A expense of $1.34 billion decreased $71 million, or 5 percent. Both comparisons reflect savings from ongoing efforts across the company to align costs with growth opportunities, including the completed restructuring actions in Embedded Processing and Japan. These decreases were partially offset by higher compensation-related costs.

Acquisition charges were unchanged at $248 million. These non-cash charges were from the ongoing amortization of intangible assets.

Operating profit was $3.13 billion, or 31.9 percent of revenue, compared with $2.85 billion, or 29.1 percent of revenue.

Our tax provision increased to $927 million from $791 million due to higher income before income taxes and, to a lesser extent, a lower benefit from non-U.S. tax rates.

 

17


 

Net income was $2.15 billion compared with $2.00 billion. EPS was $2.02 compared with $1.81.

Year-to-date segment results

Our segment results compared with the year-ago period are as follows:

Analog

 

 

 

YTD 2015

 

 

YTD 2014

 

 

Change

 

Revenue

 

$

6,266

 

 

$

5,981

 

 

 

5

%

Operating profit

 

 

2,261

 

 

 

1,964

 

 

 

15

%

Operating profit % of revenue

 

 

36.1

%

 

 

32.8

%

 

 

 

 

 

Analog revenue increased due to HVAL and, to a lesser extent, Power. SVA also increased. HPA decreased due to the mix of products shipped. Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing

 

 

 

YTD 2015

 

 

YTD 2014

 

 

Change

 

Revenue

 

$

2,087

 

 

$

2,070

 

 

 

1

%

Operating profit

 

 

432

 

 

 

270

 

 

 

60

%

Operating profit % of revenue

 

 

20.7

%

 

 

13.0

%

 

 

 

 

 

Embedded Processing revenue was about even as Connectivity and Microcontrollers grew about equally, but were offset by a decrease in Processors. Operating profit increased primarily due to lower operating expenses.

Other

 

 

 

YTD 2015

 

 

YTD 2014

 

 

Change

 

Revenue

 

$

1,458

 

 

$

1,725

 

 

 

-15

%

Operating profit*

 

 

439

 

 

 

613

 

 

 

-28

%

Operating profit % of revenue

 

 

30.1

%

 

 

35.5

%

 

 

 

 

 

*    Includes Acquisition charges and Restructuring charges/other.

 

Other revenue decreased due to custom ASIC products and, to a lesser extent, DLP products. Revenue from calculators was about even. Operating profit decreased due to lower revenue and associated gross profit.

Financial condition

At the end of the third quarter of 2015, total cash (Cash and cash equivalents plus Short-term investments) was $2.74 billion, a decrease of $806 million from the end of 2014.

Accounts receivable was $1.48 billion, an increase of $235 million compared with the end of 2014 primarily due to higher revenue at the end of the third quarter than at the end of 2014. Days sales outstanding were 39 at the end of the third quarter compared with 34 at the end of 2014.

Inventory was $1.77 billion, a decrease of $13 million from the end of 2014. Days of inventory at the end of the third quarter were 111 compared with 117 at the end of 2014 and 126 at the end of the second quarter. The reduction from the end of the second quarter was due to lower factory starts and higher-than-expected revenue.

 

18


 

Liquidity and capital resources

Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are Cash and cash equivalents, Short-term investments and a variable-rate revolving credit facility. Cash flows from operating activities for the first nine months of 2015 was $2.84 billion, an increase of $218 million from the year-ago period primarily due to an increase in Net income.

Our revolving credit facility is with a consortium of investment-grade banks and allows us to borrow up to $2 billion until March 2020. This credit facility also serves as support for the issuance of commercial paper. As of September 30, 2015, our credit facility was undrawn and we had no commercial paper outstanding.

For the first nine months of 2015, investing activities provided $373 million in cash compared with $114 million in the year-ago period. Capital expenditures were $387 million compared with $260 million in the year-ago period, and were primarily for semiconductor manufacturing equipment. We received proceeds from sales of short-term investments, net of purchases, of $742 million, compared with $321 million in the year-ago period.

For the first nine months of 2015, financing activities used cash of $3.28 billion compared with $3.06 billion in the year-ago period. In both 2015 and 2014, we received proceeds of $498 million from the issuance of fixed-rate long-term debt (net of original issuance discount) and retired maturing debt of $1.0 billion. We paid dividends of $1.06 billion compared with $967 million in the year-ago period, reflecting an increase in the dividend rate, partially offset by fewer shares outstanding. We used $2.11 billion to repurchase 39.7 million shares of our common stock, compared with $2.13 billion used in the year-ago period to repurchase 46.8 million shares. Employee exercises of stock options provided cash proceeds of $332 million compared with $476 million in the year-ago period.

In September 2015, we announced a 12 percent increase in our quarterly cash dividend, which increased from $0.34 to $0.38 per share. This dividend will be payable November 16, 2015, to stockholders of record on October 30, 2015. Additionally, our Board of Directors authorized the repurchase of an additional $7.5 billion of our common stock, bringing the total outstanding authorization to $8.56 billion as of September 30, 2015.

We had $1.13 billion of Cash and cash equivalents and $1.60 billion of Short-term investments as of September 30, 2015. We believe we have the necessary financial resources and operating plans to fund our working capital needs, capital expenditures, dividend and debt-related payments, and other business requirements for at least the next 12 months.

Non-GAAP financial information

This MD&A includes references to free cash flow and ratios based on that measure.  These are financial measures that were not prepared in accordance with GAAP.  Free cash flow was calculated by subtracting Capital expenditures from the most directly comparable GAAP measure, Cash flows from operating activities (also referred to as cash flow from operations).

We believe that free cash flow and the associated ratios provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to investors, as well as insight into our financial performance.  These non-GAAP measures are supplemental to the comparable GAAP measures.

Reconciliation to the most directly comparable GAAP-based measures is provided in the table below.

 

 

 

For 12 Months Ended

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2015

 

 

2014

 

 

Change

 

Cash flow from operations (GAAP)

 

$

4,110

 

 

$

3,819

 

 

 

8

%

Capital expenditures

 

 

(512

)

 

 

(367

)

 

 

 

 

Free cash flow (non-GAAP)

 

$

3,598

 

 

$

3,452

 

 

 

4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

13,080

 

 

$

12,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operations as a percent of revenue (GAAP)

 

 

31

%

 

 

30

%

 

 

 

 

Free cash flow as a percent of revenue (non-GAAP)

 

 

28

%

 

 

27

%

 

 

 

 

 

 

19


 

Long-term contractual obligations

Information regarding long-term debt obligations is described in the long-term contractual obligations table in Item 7 of our Form 10-K for the year ended December 31, 2014.  Additionally, in April 2015 we retired $250 million of maturing debt and in August 2015 we retired $750 million of maturing debt. In May 2015 we issued $500 million principal amount of 1.75% notes maturing in 2020.

Changes in accounting standards

See Note 2 to the financial statements for detailed information regarding the status of new accounting and reporting standards.

 

 

ITEM 4. Controls and Procedures.

An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective. In addition, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

20


 

PART II – OTHER INFORMATION

 

ITEM 1A.  Risk Factors.

Information concerning our risk factors is contained in Item 1A of our Form 10-K for the year ended December 31, 2014, and is incorporated by reference herein.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table contains information regarding our purchases of our common stock during the quarter.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

 

of Shares

 

 

Dollar Value

 

 

 

 

 

 

 

 

 

 

 

Purchased as

 

 

of Shares that

 

 

 

 

 

 

 

 

 

 

 

Part of

 

 

May Yet Be

 

 

 

Total

 

 

 

 

 

 

Publicly

 

 

Purchased

 

 

 

Number of

 

 

Average

 

 

Announced

 

 

Under the

 

 

 

Shares

 

 

Price Paid

 

 

Plans or

 

 

Plans or

 

Period

 

Purchased

 

 

per Share

 

 

Programs(1)

 

 

Programs(1)

 

July 1, 2015 through July 31, 2015

 

 

11,545,747

 

 

$

49.90

 

 

 

11,545,747

 

 

1.26 billion

 

August 1, 2015 through August 31, 2015

 

 

2,909,770

 

 

 

49.46

 

 

 

2,909,770

 

 

1.12 billion

 

September 1, 2015 through September 30, 2015

 

 

1,278,374

 

 

 

46.92

 

 

 

1,278,374

 

 

8.56 billion

 

Total

 

 

15,733,891

 

(2)

$

49.57

 

 

 

15,733,891

 

(2)

8.56 billion

(3)

 

(1)  All purchases during the quarter were made under the authorization from our board of directors to purchase up to $5.0 billion of additional shares of TI common stock announced on February 21, 2013. On September 17, 2015, our board of directors authorized the purchase of an additional $7.5 billion of our common stock. No expiration date has been specified for these authorizations.

(2)   All purchases during the quarter were open-market purchases. The table does not include the purchase of 189,077 shares pursuant to orders placed in the second quarter of 2015 for which trades were settled in the first two days of July 2015.

(3)   As of September 30, 2015, this amount consisted of the remaining portion of the $5.0 billion authorized in February 2013 and the $7.5 billion authorized in September 2015.

 


 

21


 

ITEM 6. Exhibits.

 

Designation of

Exhibits in This

Report

Description of Exhibit

3(a)

Restated Certificate of Incorporation of the Registrant, dated April 18, 1985, as amended (incorporated by reference to Exhibit 3(a) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014).

3(b)

By-Laws of the Registrant (incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014).

31(a)

Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e).

31(b)

Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(e) or Rule 15d-15(e).

32(a)

Certification by Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.

32(b)

Certification by Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.

101.ins

XBRL Instance Document

101.def

XBRL Taxonomy Extension Definition Linkbase Document

101.sch

XBRL Taxonomy Extension Schema Document

101.cal

XBRL Taxonomy Extension Calculation Linkbase Document

101.lab

XBRL Taxonomy Extension Label Linkbase Document

101.pre

XBRL Taxonomy Extension Presentation Linkbase Document

Filed or furnished herewith.


 

22


 

Notice regarding forward-looking statements

This report includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  These forward-looking statements generally can be identified by phrases such as TI or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import.  Similarly, statements herein that describe TI’s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.  All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements.

We urge you to carefully consider the following important factors that could cause actual results to differ materially from the expectations of TI or its management:

 

Market demand for semiconductors, particularly in markets such as personal electronics and communications equipment;

TI’s ability to maintain or improve profit margins, including its ability to utilize its manufacturing facilities at sufficient levels to cover its fixed operating costs, in an intensely competitive and cyclical industry;

TI’s ability to develop, manufacture and market innovative products in a rapidly changing technological environment;

TI’s ability to compete in products and prices in an intensely competitive industry;

TI’s ability to maintain and enforce a strong intellectual property portfolio and obtain needed licenses from third parties;

Expiration of license agreements between TI and its patent licensees, and market conditions reducing royalty payments to TI;

Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security risks, health conditions, possible disruptions in transportation, communications and information technology networks and fluctuations in foreign currency exchange rates;

Natural events such as health epidemics, severe weather and earthquakes in the locations in which TI, its customers or its suppliers operate;

Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;

Changes in the tax rate applicable to TI as the result of changes in tax law, the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets;

Compliance with or changes in the complex laws, rules and regulations to which TI is or may become subject, or actions of enforcement authorities, that restrict our ability to manufacture our products or operate our business, or subject us to fines, penalties, or other legal liability;

Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments;

Financial difficulties of our distributors or their promotion of competing product lines to TI’s detriment;

A loss suffered by a customer or distributor of TI with respect to TI-consigned inventory;

Customer demand that differs from our forecasts;

The financial impact of inadequate or excess TI inventory that results from demand that differs from projections;

Impairments of our non-financial assets;

Product liability or warranty claims, claims based on epidemic or delivery failure, recalls by TI customers for a product containing a TI part or other legal proceedings;

TI’s ability to recruit and retain skilled personnel;

Timely implementation of new manufacturing technologies and installation of manufacturing equipment, and the ability to obtain needed third-party foundry and assembly/test subcontract services;

TI’s obligation to make principal and interest payments on its debt;

TI’s ability to successfully integrate and realize opportunities for growth from acquisitions, and our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings; and

Breaches of our information technology systems or those of our customers or suppliers.

For a more detailed discussion of these factors see the Risk Factors discussion in Item 1A of our most recent Form 10-K. The forward-looking statements included in this report are made only as of the date of this report. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or risks.  If we do update any forward-looking statement, you should not infer that we will make additional updates with respect to that statement or any other forward-looking statement.

 

 

 

 

23


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TEXAS INSTRUMENTS INCORPORATED

 

BY

/s/ Kevin P. March

 

 Kevin P. March

 

 Senior Vice President and

 

 Chief Financial Officer

 

Date: November 5, 2015

 

24