TEXAS INSTRUMENTS INC - Quarter Report: 2024 March (Form 10-Q)

(a)% in the first quarters of both 2024 and 2023.

Significant accounting policies and practices

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

$ Income allocated to RSUs() () Income allocated to common stock$ $ $ $ Dilutive effect of stock compensation plans Diluted EPS: Net income$ $ Income allocated to RSUs() ()Income allocated to common stock$ $ $ $

Potentially dilutive securities representing million and million shares of common stock that were outstanding during the first quarters of 2024 and 2023, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive.

As of March 31, 2024, the carrying value of long-term debt, including the current portion, was $ billion, and the estimated fair value was $ 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.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

$ Discrete tax items ()Provision for income taxes$ $ Effective tax rate % %

The effective tax rate differs from the % U.S. statutory corporate tax rate due to the effect of U.S. tax benefits.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

$ $ $ $ $ Corporate obligations U.S. government and agency securities Non-U.S. government and agency securities Mutual funds Total Other measurement basis:Equity-method investments Nonmarketable investments Total Cash on hand Total$ $ $ $ $ $

As of March 31, 2024, and December 31, 2023, unrealized gains and losses associated with our debt investments were not material. We did t recognize any credit losses related to debt investments for the first three months of 2024 and 2023.

One to two years

Proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $ billion and $ billion for the first quarters of 2024 and 2023, respectively. Gross realized gains and losses from these sales were not material.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Level 3 assets or liabilities. $ $ $ $ $ Corporate obligations U.S. government and agency securities Non-U.S. government and agency securities Mutual funds Total assets$ $ $ $ $ $ Liabilities:Deferred compensation$ $ $ $ $ $ Total liabilities$ $ $ $ $ $

$ $ $ $ $ Interest cost Expected return on plan assets()()()()()()Recognized net actuarial losses (gains) ()() Net periodic benefit costs (credits)$ $ $()$()$ $

billion until March 2025. The interest rate on borrowings under this credit facility, if drawn, is indexed to the applicable Term Secured Overnight Financing Rate (Term SOFR). As of March 31, 2024, our credit facility was undrawn, and we had commercial paper outstanding.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

series of senior unsecured notes for an aggregate principal amount of $ billion, consisting of:

•$ million of % notes due in 2027;

•$ million of % notes due in 2029;

•$ million of % notes due in 2034;

•$ million of % notes due in 2054; and

•$ million further issuance of existing % notes due in 2063.

We incurred $ million of issuance and other related costs. The proceeds of the offering were $ billion, net of the original issuance discounts, which will be used for general corporate purposes.

%$ $

Notes due 2024 at %

Notes due 2025 at %

Notes due 2026 at %

Notes due 2027 at %

Notes due 2028 at %

Notes due 2029 at %

Notes due 2030 at %

Notes due 2031 at %

Notes due 2032 at %

Notes due 2033 at %

Notes due 2034 at %

Notes due 2039 at %

Notes due 2048 at %

Notes due 2051 at %

Notes due 2052 at %

Notes due 2053 at %

Notes due 2054 at %

Notes due 2063 at %

Total debt Net unamortized discounts, premiums and issuance costs()()Total debt, including net unamortized discounts, premiums and issuance costs Current portion of long-term debt()()Long-term debt$ $

Interest and debt expense was $ million and $ million for the first quarters of 2024 and 2023, respectively. This was net of the amortized discounts, premiums, issuance and other related costs. Capitalized interest was $ million and $ million for the first quarters of 2024 and 2023, respectively.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

$ $ $()$()2024Net income— — — —

Dividends declared and paid ($ per share)

— — ()— — Common stock issued for stock-based awards— ()— — Stock repurchases— — — ()— Stock compensation— — — — Other comprehensive income (loss), net of taxes— — — — Dividend equivalents on RSUs— — ()— — Other— — — Balance, March 31, 2024$ $ $ $()$()


	Common Stock	Paid-in Capital	Retained Earnings	Treasury Common Stock		AOCI
Balance, December 31, 2022	$	$	$	$	()	$	()

2023
Net income	—	—		—		—
Dividends declared and paid ($ per share)	—	—	()	—		—
Common stock issued for stock-based awards	—	()	—			—
Stock repurchases	—	—	—	()		—
Stock compensation	—		—	—		—
Other comprehensive income (loss), net of taxes	—	—	—	—
Dividend equivalents on RSUs	—	—	()	—		—
Other	—	()		—		—
Balance, March 31, 2023	$	$	$	$	()	$	()

March 31, 20242023 Repurchases Shares issued for stock compensation()Balance, March 31

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

Overview

We design and manufacture semiconductors that we sell to electronics designers and manufacturers all over the world. Technology is the foundation of our company, but ultimately, our objective and the best metric for owners to measure our progress is through the growth of free cash flow per share over the long term.

Our strategy to maximize long-term free cash flow per share growth has three elements:

1.A great business model that is focused on analog and embedded processing products and built around four sustainable competitive advantages. The four sustainable competitive advantages are powerful in combination and provide tangible benefits:

i.A strong foundation of manufacturing and technology that provides lower costs and greater control of our supply chain.

ii.A broad portfolio of analog and embedded processing products that offers more opportunity per customer and more value for our investments.

iii.The reach of our market channels that gives access to more customers and more of their design projects, leading to the opportunity to sell more of our products into each design and gives us better insight and knowledge of customer needs.

iv.Diversity and longevity of our products, markets and customer positions that provide less single point dependency and longer returns on our investments.

Together, these competitive advantages help position TI in a unique class of companies capable of generating and returning significant amounts of cash for our owners. We make our investments with an eye towards long-term strengthening and leveraging of these advantages.

2.Discipline in allocating capital to the best opportunities. This spans how we select R&D projects, develop new capabilities like TI.com, invest in new manufacturing capacity or how we think about acquisitions and returning cash to our owners.

3.Efficiency, which means constantly striving for more output for every dollar spent.

We believe that our business model with the combined effect of our four competitive advantages sets TI apart from our peers and will for a long time to come. We will invest to strengthen our competitive advantages, be disciplined in capital allocation and stay diligent in our pursuit of efficiencies. Finally, we will remain focused on the belief that long-term growth of free cash flow per share is the ultimate measure to generate value.

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:

•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.

•When we discuss our results:

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

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

◦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.

◦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.

•For an explanation of free cash flow, see the Non-GAAP financial information section.

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

Performance summary

Our first quarter revenue was $3.66 billion, net income was $1.11 billion and earnings per share (EPS) were $1.20.

Revenue decreased 16% from the same quarter a year ago and 10% sequentially, as revenue declined across all end markets.

Our cash flow from operations of $6.3 billion for the trailing 12 months again underscored the strength of our business model, the quality of our product portfolio and the benefit of 300mm production. Free cash flow for the same period was $940 million.

Over the past 12 months we invested $3.7 billion in R&D and SG&A, invested $5.3 billion in capital expenditures and returned $4.8 billion to shareholders.

Results of operations – first quarter 2024 compared with first quarter 2023

Revenue of $3.66 billion decreased $718 million, or 16%, primarily due to lower revenue from Analog and, to a lesser extent, Embedded Processing.

Gross profit of $2.10 billion was down $768 million, or 27%, primarily due to lower revenue and, to a lesser extent, higher manufacturing costs associated with reduced factory loadings and our planned capacity expansions. As a percentage of revenue, gross profit decreased to 57.2% from 65.4%.

Operating expenses (R&D and SG&A) were $933 million compared with $929 million.

Restructuring charges/other was a credit of $124 million primarily due to a gain on the sale of a property during 2024.

Operating profit was $1.29 billion, or 35.1% of revenue, compared with $1.93 billion, or 44.2% of revenue.

OI&E was $123 million of income compared with $80 million of income, primarily due to higher interest income.

Interest and debt expense of $116 million increased $48 million due to the issuance of additional long-term debt. See Note 6 to the financial statements.

Our provision for income taxes was $188 million compared with $238 million. This decrease was due to lower income before income taxes, partially offset by discrete tax items.

Net income was $1.11 billion compared with $1.71 billion. EPS was $1.20 compared with $1.85.

First quarter 2024 segment results

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

Analog (includes Power and Signal Chain product lines)


	Q1 2024			Q1 2023			Change
Revenue	$	2,836		$	3,289		(14)	%
Operating profit	1,008			1,574			(36)	%
Operating profit % of revenue	35.5		%	47.9		%

Analog revenue decreased in both product lines, led by Signal Chain. Operating profit decreased primarily due to lower revenue and higher manufacturing costs.

Embedded Processing (includes microcontrollers and processors)


	Q1 2024			Q1 2023			Change
Revenue	$	652		$	832		(22)	%
Operating profit	105			237			(56)	%
Operating profit % of revenue	16.1		%	28.5		%

Embedded Processing revenue decreased. Operating profit decreased primarily due to lower revenue and associated gross profit.

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


	Q1 2024			Q1 2023			Change
Revenue	$	173		$	258		(33)	%
Operating profit*	173			123			41	%
Operating profit % of revenue	100.0		%	47.7		%
* Includes restructuring charges/other

Other revenue decreased $85 million, and operating profit increased $50 million.

Financial condition

At the end of the first quarter of 2024, total cash (cash and cash equivalents plus short-term investments) was $10.39 billion, an increase of $1.82 billion from the end of 2023.

Accounts receivable were $1.67 billion, a decrease of $116 million compared with the end of 2023. Days sales outstanding for the first quarter of 2024 were 41 compared with 39 at the end of 2023.

Inventory was $4.08 billion, an increase of $84 million from the end of 2023. Days of inventory for the first quarter of 2024 were 235 compared with 219 at the end of 2023.

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 access to debt markets. We also have a variable-rate, revolving credit facility. As of March 31, 2024, our credit facility was undrawn, and we had no commercial paper outstanding. Cash flows from operating activities for the first three months of 2024 were $1.02 billion, a decrease of $143 million from the year-ago period primarily due to lower net income, partially offset by lower cash used for working capital.

Investing activities for the first three months of 2024 used $3.33 billion compared with $28 million of cash provided in the year-ago period. Capital expenditures were $1.25 billion compared with $982 million in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods. Short-term investments used cash of $2.23 billion compared with $1.01 billion of cash provided in the year-ago period.

As we continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity planning, our capital expenditures are expected to remain at elevated levels. In August 2022, the U.S. government enacted the U.S. CHIPS and Science Act, which provides funding for manufacturing grants and research investments and establishes a 25% investment tax credit for certain investments in U.S. semiconductor manufacturing. We will begin receiving the cash benefit associated with the investment tax credit for qualifying capital expenditures in the second quarter of 2024. See Note 9 to the financial statements. We have also submitted applications for the manufacturing grants provided by the legislation.

Financing activities for the first three months of 2024 provided $1.83 billion compared with $239 million in the year-ago period. In 2024, we received net proceeds of $2.98 billion from the issuance of fixed-rate, long-term debt. In the year-ago period, we received net proceeds of $1.40 billion from the issuance of fixed-rate, long-term debt. Dividends paid were $1.18 billion compared with $1.13 billion in the year-ago period, reflecting an increased dividend rate. We used $3 million to repurchase shares of our common stock compared with $103 million in the year-ago period. Employee exercises of stock options provided cash proceeds of $65 million compared with $85 million in the year-ago period.

We had $2.48 billion of cash and cash equivalents and $7.91 billion of short-term investments as of March 31, 2024. 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 generally accepted accounting principles in the United States (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 shareholders, 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 measures is provided in the table below.


	For 12 Months Ended
	March 31,
	2024			2023			Change
Cash flow from operations (GAAP)	$	6,277		$	7,736		(19)	%
Capital expenditures	(5,337)			(3,336)
Free cash flow (non-GAAP)	$	940		$	4,400		(79)	%

Revenue	$	16,801		$	19,502

Cash flow from operations as a percentage of revenue (GAAP)	37.4		%	39.7		%
Free cash flow as a percentage of revenue (non-GAAP)	5.6		%	22.6		%

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.

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, 2023, 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


Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)
January 1, 2024 through January 31, 2024	206,420		$	162.04		1,323	$	21.20	billion
February 1, 2024 through February 29, 2024	17,106		158.65			17,106	21.19		billion
March 1, 2024 through March 31, 2024	—		—			—	21.19		billion
Total	223,526	(b)	$	161.78	(b)	18,429	$	21.19	billion (c)

(a)All open-market purchases during the quarter were made under the authorizations from our board of directors to purchase up to $12.0 billion and $15.0 billion of additional shares of TI common stock announced September 20, 2018, and September 15, 2022, respectively.

(b)In addition to open-market purchases, 205,097 shares of common stock were surrendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units.

(c)As of March 31, 2024, this amount consisted of the remaining portion of the $12.0 billion authorized in September 2018 and the $15.0 billion authorized in September 2022. No expiration date has been specified for these authorizations.

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 of the Registrant’s Current Report on Form 8-K filed January 26, 2022).
4(a)						Officers’ Certificate, dated February 8, 2024 (incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K filed February 8 , 2024).
31(a)						Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a).†
31(b)						Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a).†
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 – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.†
104						Cover Page Interactive Data File (embedded within the Inline XBRL document).†
† Filed or furnished herewith.

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 our management:

•Economic, social and political conditions, and natural events in the countries in which we, our customers or our suppliers operate, including global trade policies;

•Market demand for semiconductors, particularly in the industrial and automotive markets, and customer demand that differs from forecasts;

•Our ability to compete in products and prices in an intensely competitive industry;

•Evolving cybersecurity and other threats relating to our information technology systems or those of our customers, suppliers and other third parties;

•Our ability to successfully implement and realize opportunities from strategic, business and organizational changes, or our ability to realize our expectations regarding the amount and timing of associated restructuring charges and cost savings;

•Our ability to develop, manufacture and market innovative products in a rapidly changing technological environment, our timely implementation of new manufacturing technologies and installation of manufacturing equipment, and our ability to realize expected returns on significant investments in manufacturing capacity;

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

•Our ability to recruit and retain skilled personnel, and effectively manage key employee succession;

•Product liability, warranty or other claims relating to our products, software, manufacturing, delivery, services, design or communications, or recalls by our customers for a product containing one of our parts;

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

•Changes in tax law and accounting standards that impact the tax rate applicable to us, the jurisdictions in which profits are determined to be earned and taxed, adverse resolution of tax audits, increases in tariff rates, and the ability to realize deferred tax assets;

•Financial difficulties of our distributors or semiconductor distributors’ promotion of competing product lines to our detriment; or disputes with current or former distributors;

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

•Our ability to maintain or improve profit margins, including our ability to utilize our manufacturing facilities at sufficient levels to cover our fixed operating costs, in an intensely competitive and cyclical industry and changing regulatory environment;

•Our ability to maintain and enforce a strong intellectual property portfolio and maintain freedom of operation in all jurisdictions where we conduct business; or our exposure to infringement claims;

•Instability in the global credit and financial markets; and

•Impairments of our non-financial assets.

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, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. 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.

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/	Rafael R. Lizardi
	Rafael R. Lizardi, Senior Vice President and Chief Financial Officer

Date: April 24, 2024

TEXAS INSTRUMENTS INC - Quarter Report: 2024 March (Form 10-Q)

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