What changed in this filing

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Item 1. Financial Statements

2021-04-28 compared with 2020-10-21 · 54 added, 170 removed, 332 unchanged (40% of the section changed)

Financial statements

For Three Months Ended For Nine Months Ended

Consolidated Statements of Income September 30, September 30,

For Three Months Ended

Consolidated Statements of Income March 31,

(Millions of dollars, except share and per-share amounts) 2021 2020

5 unchanged sentences

Acquisition charges 47 50

Restructuring charges/other — — 24 ( 36 )

Operating profit 1,939 1,244

17 unchanged sentences

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

For Three Months Ended For Nine Months Ended

Consolidated Statements of Comprehensive Income September 30, September 30,

For Three Months Ended

Consolidated Statements of Comprehensive Income March 31,

(Millions of dollars) 2021 2020

3 unchanged sentences

Adjustments, net of tax effect of ($ 2 ) and ($ 3 )

( 7 ) 5 ( 8 ) —

Recognized within net income, net of tax effect of ($ 3 ) and ($ 2 )

($ 7 ) and ($ 10 )

Prior service credit of defined benefit plans:

Recognized within net income, net of tax effect of $ 0 and $ 0 ;

( 1 ) — ( 1 ) —

Available-for-sale investments:

Unrealized gains, net of tax effect of $ 0 and $ 0

Other comprehensive income (loss), net of taxes 13 19

2 unchanged sentences

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

September 30, December 31,

March 31, December 31,

Consolidated Balance Sheets 2021 2020

13 unchanged sentences

Property, plant and equipment 3,431 3,269

Long-term investments 47 300

Goodwill 4,362 4,362

21 unchanged sentences

Authorized – 10,000,000 shares;

Participating cumulative preferred – None issued

Common stock, $ 1 par value.

4 unchanged sentences

Treasury common stock at cost

September 30, 2020 – 823,174,578 ;

March 31, 2021 – 817,573,099 ;

December 31, 2020 – 821,461,787

5 unchanged sentences

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

For Nine Months Ended

Consolidated Statements of Cash Flows September 30,

For Three Months Ended

Consolidated Statements of Cash Flows March 31,

(Millions of dollars) 2021 2020

41 unchanged sentences

We design, make and sell semiconductors to electronics designers and manufacturers all over the world.

We have two reportable segments, which are established along major categories of products as follows:

• Analog – consisting of the following product lines:

We have two reportable segments, Analog and Embedded Processing, each of which represents groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels.

• Analog semiconductors change real-world signals, such as sound, temperature, pressure or images, by conditioning them, amplifying them and often converting them to a stream of digital data that can be processed by other semiconductors, such as embedded processors.

Analog semiconductors are also used to manage power in all electronic equipment by converting, distributing, storing, discharging, isolating and measuring electrical energy, whether the equipment is plugged into a wall or using a battery.

Our Analog segment consists of two major product lines:

Power and Signal Chain.

• Embedded Processing – consisting of the following product lines:

Connected Microcontrollers and Processors.

During the third quarter, we reorganized the product lines within our Analog segment to simplify our business structure into our Power and Signal Chain product lines.

These changes had no effect on either our previously reported consolidated financial statements or on our reportable segment results.

• Embedded Processing products are the digital “brains” of many types of electronic equipment.

They are designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application.

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

5 unchanged sentences

Segment information

For Three Months Ended For Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

For Three Months Ended

Analog $ 3,280 $ 2,460

12 unchanged sentences

The geographic revenue information does not necessarily reflect end demand by geography because our products tend to be shipped to the locations where our customers manufacture their products.

For Three Months Ended For Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

For Three Months Ended

United States $ 393 $ 390

4 unchanged sentences

Total revenue $ 4,289 $ 3,329

(a) Revenue from products shipped into China was $ 2.2 billion and $ 1.9 billion in the third quarters of 2020 and 2019, respectively, and $ 5.7 billion and $ 5.4 billion in the first nine months of 2020 and 2019, respectively, which includes shipments to customers that manufacture in China and then export end products to their customers around the world, as well as distributors that transship inventory through China to service other countries.

(a) Revenue from products shipped into China was $ 2.3 billion and $ 1.7 billion in the first quarters of 2021 and 2020, respectively, which includes shipments to customers that manufacture in China and then export end products to their customers around the world, as well as distributors that transship inventory through China to service other countries.

Basis of presentation and significant accounting policies and practices

1 unchanged sentence

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2020.

The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2020 and 2019, and the Consolidated Balance Sheet as of September 30, 2020, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown.

The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended March 31, 2021 and 2020, and the Consolidated Balance Sheet as of March 31, 2021, 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.

1 unchanged sentence

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, 2020.

The results for the three- and nine-month periods are not necessarily indicative of a full year’s results.

The results for the three-month periods are not necessarily indicative of a full year’s results.

Significant accounting policies and practices

4 unchanged sentences

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

For Three Months Ended September 30,

Net Income Shares EPS Net Income Shares EPS

Net income $ 1,353 $ 1,425

Income allocated to RSUs ( 6 ) ( 9 )

Income allocated to common stock $ 1,347 917 $ 1.47 $ 1,416 935 $ 1.51

Dilutive effect of stock compensation plans 12 15

Net income $ 1,353 $ 1,425

Income allocated to RSUs ( 6 ) ( 8 )

Income allocated to common stock $ 1,347 929 $ 1.45 $ 1,417 950 $ 1.49

For Nine Months Ended September 30,

For Three Months Ended March 31,

Net Income Shares EPS Net Income Shares EPS

6 unchanged sentences

Income allocated to common stock $ 1,745 935 $ 1.87 $ 1,168 943 $ 1.24

Potentially dilutive securities representing 3 million and 6 million shares of common stock that were outstanding during the third quarters of 2020 and 2019, respectively, and 4 million and 7 million shares outstanding during the first nine months of 2020 and 2019, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive.

Potentially dilutive securities representing 3 million and 9 million shares of common stock that were outstanding during the first quarters of 2021 and 2020, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive.

Derivatives and hedging

9 unchanged sentences

We do not use derivatives for speculative or trading purposes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Fair values of financial instruments

The fair values of our derivative financial instruments were not material as of September 30, 2020.

The fair values of our derivative financial instruments were not material as of March 31, 2021.

Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our deferred compensation liabilities, are carried at fair value.

The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments.

As of September 30, 2020, the carrying value of long-term debt, including the current portion, was $ 6.80 billion, and the estimated fair value was $ 7.73 billion.

As of March 31, 2021, the carrying value of long-term debt, including the current portion, was $ 6.25 billion, and the estimated fair value was $ 6.74 billion.

The estimated fair value is measured using broker-dealer quotes, which are Level 2 inputs.

See Note 4 for a description of fair value and the definition of Level 2 inputs.

Changes in accounting standards – adopted standards for current period

We adopted the following Accounting Standards Updates (ASU) during the current period, none of which had a material impact on our financial position or results of operations.

ASU Description Adopted Date

2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments January 1, 2020

2018-13 Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement January 1, 2020

2018-15 Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract January 1, 2020

Our estimated annual effective tax rate is about 14 %, which does not include discrete tax items.

This differs from the 21 % statutory corporate tax rate due to the effect of U.S.

This differs from the 21 % U.S.

statutory corporate tax rate due to the effect of U.S.

tax benefits.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Provision for income taxes is based on the following:

For Three Months Ended For Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

For Three Months Ended

Taxes calculated using the estimated annual effective tax rate $ 275 $ 166

1 unchanged sentence

Provision for income taxes $ 186 $ 50

Actual effective tax rate 15 % 10 % 4 % 12 %

Our provision for income taxes for the first nine months of 2020 includes a $ 249 million discrete tax benefit in the second quarter for the settlement of a depreciation-related uncertain tax position.

Accrued interest of $ 46 million related to this uncertain tax position was reversed in the second quarter and is included in OI&E.

Effective tax rate 10 % 4 %

Valuation of debt and equity investments and certain liabilities

Investments measured at fair value

Available-for-sale debt investments and trading securities are stated at fair value, which is generally based on market prices or broker quotes.

Available-for-sale debt investments, money market funds and mutual funds are stated at fair value, which is generally based on market prices or broker quotes.

See Fair-value considerations below.

Unrealized gains and losses from available-for-sale debt securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets and any credit losses on available-for-sale debt securities are recorded as an allowance for credit losses with an offset recognized in OI&E in our Consolidated Statements of Income.

We classify certain mutual funds as trading securities.

These mutual funds hold a variety of debt and equity investments intended to generate returns that offset changes in certain deferred compensation liabilities.

Our 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.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Other investments

5 unchanged sentences

Details of our investments are as follows:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and Cash Equivalents Short-Term Investments Long-Term Investments Cash and Cash Equivalents Short-Term Investments Long-Term Investments

Measured at fair value:

Available-for-sale debt securities:

Money market funds $ 1,236 $ — $ — $ 886 $ — $ —

1 unchanged sentence

government agency and Treasury securities 200 3,175 — 1,340 3,054 —

Trading securities:

Mutual funds — — 14 — — 18

5 unchanged sentences

Total $ 2,442 $ 4,244 $ 70 $ 3,107 $ 3,461 $ 49

As of September 30, 2020 and December 31, 2019, unrealized gains and losses associated with our available-for-sale investments were not material.

We did no t recognize any credit losses related to available-for-sale investments for the first nine months of 2020 and 2019.

All of our debt securities classified as available for sale as of September 30, 2020, have maturities within one year.

Proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $ 510 million and $ 220 million for the third quarters of 2020 and 2019, respectively, and $ 3.71 billion and $ 2.00 billion for the first nine months of 2020 and 2019, respectively.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

As of March 31, 2021, and December 31, 2020, unrealized gains and losses associated with our available-for-sale investments were not material.

We did no t recognize any credit losses related to available-for-sale investments for the first three months of 2021 and 2020.

Proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $ 2.00 billion and $ 1.39 billion for the first quarters of 2021 and 2020, respectively.

Gross realized gains and losses from these sales were not material.

During the first nine months of 2020, we entered into total return swaps to economically hedge the variability of certain deferred compensation obligations to employees.

The following table presents the aggregate maturities of our available-for-sale debt investments as of March 31, 2021:

One year or less $ 4,647

One to two years 50

During the first quarter of 2020, we entered into total return swaps to economically hedge the variability of certain deferred compensation obligations to employees.

As a result, we received proceeds of $ 253 million from the sale of investments in mutual funds that were previously being utilized to offset this exposure.

4 unchanged sentences

• Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

• Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active.

4 unchanged sentences

These values are generally determined using pricing models that utilize management estimates of market participant assumptions.

As of September 30, 2020, and December 31, 2019, we had no Level 3 assets or liabilities.

As of March 31, 2021, and December 31, 2020, we had no Level 3 assets or liabilities.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

The following are our assets and liabilities that were accounted for at fair value on a recurring basis.

These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Level 1 Level 2 Total Level 1 Level 2 Total

6 unchanged sentences

Total liabilities $ 337 $ — $ 337 $ 350 $ — $ 350

Goodwill and acquisition-related intangibles

Goodwill was $ 4.36 billion as of September 30, 2020 and December 31, 2019.

There was no impairment of goodwill during the first nine months of 2020 or 2019.

The components of acquisition-related intangibles are as follows:

September 30, 2020 December 31, 2019

Amortization Period (Years) Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

Developed technology 8 – 10

$ 1,895 $ 1,706 $ 189 $ 2,000 $ 1,660 $ 340

Acquisition charges

Acquisition charges represent the ongoing amortization of intangible assets resulting from the acquisition of National Semiconductor Corporation.

These amounts are included in Other for segment reporting purposes, consistent with how management measures the performance of its segments.

Amortization of acquisition-related intangibles was $ 51 million and $ 79 million for the third quarters of 2020 and 2019, respectively, and $ 151 million and $ 238 million for the first nine months of 2020 and 2019.

Fully amortized assets are written off against accumulated amortization.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Postretirement benefit plans

3 unchanged sentences

Defined Benefit

For Three Months Ended September 30, 2020 2019 2020 2019 2020 2019

Service cost $ 5 $ 4 $ 1 $ 1 $ 9 $ 7

Interest cost 7 9 3 4 9 11

Expected return on plan assets ( 9 ) ( 10 ) ( 2 ) ( 4 ) ( 20 ) ( 20 )

Recognized net actuarial loss 1 3 — — 4 6

Amortization of prior service cost (credit) — — ( 1 ) ( 1 ) — 1

Net periodic benefit costs 4 6 1 — 2 5

Settlement losses 3 3 — — 1 —

Total, including other postretirement losses $ 7 $ 9 $ 1 $ — $ 3 $ 5

Defined Benefit U.S.

Retiree Health Care Non-U.S.

Defined Benefit

For Nine Months Ended September 30, 2020 2019 2020 2019 2020 2019

For Three Months Ended March 31, 2021 2020 2021 2020 2021 2020

Service cost $ 5 $ 4 $ 1 $ 1 $ 9 $ 8

2 unchanged sentences

Recognized net actuarial loss 4 2 — — 2 3

Amortization of prior service cost (credit) — — ( 1 ) ( 1 ) — 1

Net periodic benefit costs 9 6 1 1 — 2

4 unchanged sentences

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, 2020, 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 2024.

As of March 31, 2021, 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 2024.

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, 2020, our credit facility was undrawn, and we had no commercial paper outstanding.

As of March 31, 2021, our credit facility was undrawn, and we had no commercial paper outstanding.

Long-term debt

In the first quarter of 2020, we issued a principal amount of $ 750 million of fixed-rate, long-term debt due in 2025.

We incurred $ 4 million of issuance costs.

The proceeds of the offering were $ 749 million, net of the original issuance discount, which were used for general corporate purposes and the repayment of maturing debt.

In the second quarter of 2020, we retired $ 500 million of maturing debt.

We also issued a principal amount of $ 750 million of fixed-rate, long-term debt due in 2030.

We incurred $ 5 million of issuance costs.

The proceeds of the offering were $ 749 million, net of the original issuance discount, which were used for general corporate purposes.

In February 2021, we retired $ 550 million of maturing debt.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Long-term debt outstanding is as follows:

September 30, December 31,

Notes due 2020 at 1.75 %

March 31, December 31,

Notes due 2021 at 2.75 %

13 unchanged sentences

Long-term debt $ 6,250 $ 6,248

Interest and debt expense was $ 49 million and $ 43 million for the third quarters of 2020 and 2019, respectively, and $ 142 million and $ 125 million for the first nine months of 2020 and 2019, respectively.

Interest and debt expense was $ 46 million and $ 45 million for the first quarters of 2021 and 2020, respectively.

This was net of the amortized discounts, premiums and issuance costs.

Capitalized interest was not material.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Stockholders’ equity

11 unchanged sentences

Balance, March 31, 2021 $ 1,741 $ 2,391 $ 42,860 $ ( 36,479 ) $ ( 347 )

Net income — — 1,380 — —

Dividends declared and paid ($ 0.90 per share)

— — ( 823 ) — —

Common stock issued for stock-based awards — 17 — 70 —

Stock repurchases — — — ( 793 ) —

Stock compensation — 69 — — —

Other comprehensive income (loss), net of taxes — — — — ( 6 )

Dividend equivalents on RSUs — — ( 4 ) — —

Balance, June 30, 2020 1,741 2,182 40,780 ( 36,725 ) ( 334 )

Net income — — 1,353 — —

Dividends declared and paid ($ 0.90 per share)

— — ( 825 ) — —

Common stock issued for stock-based awards — 26 — 97 —

Stock repurchases — — — ( 15 ) —

Stock compensation — 50 — — —

Other comprehensive income (loss), net of taxes — — — — ( 1 )

Dividend equivalents on RSUs — — ( 3 ) — —

Other — ( 1 ) — — —

Balance, September 30, 2020 $ 1,741 $ 2,257 $ 41,305 $ ( 36,643 ) $ ( 335 )

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

9 unchanged sentences

Dividend equivalents on RSUs — — ( 4 ) — —

Other — — 1 — —

Balance, March 31, 2020 $ 1,741 $ 2,096 $ 40,227 $ ( 36,002 ) $ ( 328 )

Net income — — 1,305 — —

Dividends declared and paid ($ 0.77 per share)

— — ( 722 ) — —

Common stock issued for stock-based awards — 10 — 136 —

Stock repurchases — — — ( 830 ) —

Stock compensation — 67 — — —

Other comprehensive income (loss), net of taxes — — — — 8

Dividend equivalents on RSUs — — ( 4 ) — —

Other — ( 1 ) ( 1 ) ( 1 ) —

Balance, June 30, 2019 1,741 2,003 38,974 ( 33,775 ) ( 457 )

Net income — — 1,425 — —

Dividends declared and paid ($ 0.77 per share)

— — ( 721 ) — —

Common stock issued for stock-based awards — 8 — 186 —

Stock repurchases — — — ( 456 ) —

Stock compensation — 48 — — —

Other comprehensive income (loss), net of taxes — — — — 14

Dividend equivalents on RSUs — — ( 4 ) — —

Other — ( 1 ) — — —

Balance, September 30, 2019 $ 1,741 $ 2,058 $ 39,674 $ ( 34,045 ) $ ( 443 )

Contingencies

10 unchanged sentences

Product claim consideration may exceed the price of our products.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

We are subject to various legal and administrative proceedings.

1 unchanged sentence

Supplemental financial information

Restructuring charges/other

During the first nine months of 2020, we recognized $ 24 million of restructuring charges for severance and benefit costs associated with our Embedded Processing business.

As of September 30, 2020, $ 1 million of payments have been made.

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 third quarters and first nine months of 2020 and 2019.

Our Consolidated Statements of Comprehensive Income include items that have been recognized within net income during the first quarters of 2021 and 2020.

The table below details where these transactions are recorded in our Consolidated Statements of Income.

For Three Months Ended For Nine Months Ended Impact to Related Statement of Income Lines

September 30, September 30,

2020 2019 2020 2019

For Three Months Ended Impact to Related Statement of Income Lines

Net actuarial losses of defined benefit plans:

2 unchanged sentences

Recognized within net income, net of taxes $ 8 $ 8 Decrease to net income

Prior service credit of defined benefit plans:

Amortization of prior service credit (a) $ ( 1 ) $ — $ ( 1 ) $ — Increase to OI&E

Tax effect — — — — Increase to provision for income taxes

Recognized within net income, net of taxes $ ( 1 ) $ — $ ( 1 ) $ — Increase to net income

(a) Detailed in Note 5.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Stock compensation

Total shares of 2,160,645 and 8,943,825 were issued from treasury shares during the third quarter and first nine months of 2020, respectively, related to stock compensation.

Total shares of 4,465,552 were issued from treasury shares during the first quarter of 2021 related to stock compensation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements