TEXAS INSTRUMENTS INC 10-Q

ITEM 1. Financial statements For Three Months Ended Consolidated Statements of Income March 31, (In millions, except per-share amounts) 2025 2024 Revenue $ 4,069 $ 3,661 Cost of revenue (COR) 1,756 1,566 Gross profit 2,313 2,095 Research and development (R&D) 517 478 Selling, general and administrative (SG&A) 472 455 Restructuring charges/other — ( 124 ) Operating profit 1,324 1,286 Other income (expense), net (OI&E) 80 123 Interest and debt expense 128 116 Income before income taxes 1,276 1,293 Provision for income taxes 97 188 Net income $ 1,179 $ 1,105 Earnings per common share (EPS): Basic $ 1.29 $ 1.21 Diluted $ 1.28 $ 1.20 Average shares outstanding: Basic 910 910 Diluted 916 917 A portion of net income is allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents. Diluted EPS is calculated using the following: Net income $ 1,179 $ 1,105 Income allocated to RSUs ( 6 ) ( 5 ) Income allocated to common stock for diluted EPS $ 1,173 $ 1,100 See accompanying notes. 2 For Three Months Ended Consolidated Statements of Comprehensive Income March 31, (In millions) 2025 2024 Net income $ 1,179 $ 1,105 Other comprehensive income (loss) Net actuarial losses of defined benefit plans: Adjustments, net of tax effect of $ 3 and ($ 2 ) ( 7 ) 5 Recognized within net income, net of tax effect of ($ 1 ) and ($ 1 ) 2 2 Derivative instruments: Change in fair value, net of tax effect of $ 0 and $ 0 — 1 Available-for-sale investments: Unrealized gains (losses), net of tax effect of $ 0 and $ 2 ( 2 ) ( 6 ) Other comprehensive income (loss), net of taxes ( 7 ) 2 Total comprehensive income $ 1,172 $ 1,107 See accompanying notes. 3 March 31, December 31, Consolidated Balance Sheets 2025 2024 (In millions, except par value) Assets Current assets: Cash and cash equivalents $ 2,763 $ 3,200 Short-term investments 2,242 4,380 Accounts receivable, net of allowances of ($ 16 ) and ($ 21 ) 1,860 1,719 Raw materials 393 395 Work in process 2,370 2,214 Finished goods 1,924 1,918 Inventories 4,687 4,527 Prepaid expenses and other current assets 1,534 1,200 Total current assets 13,086 15,026 Property, plant and equipment at cost 16,036 15,254 Accumulated depreciation ( 4,225 ) ( 3,907 ) Property, plant and equipment 11,811 11,347 Goodwill 4,362 4,362 Deferred tax assets 1,030 936 Capitalized software licenses 263 257 Overfunded retirement plans 240 233 Other long-term assets 2,965 3,348 Total assets $ 33,757 $ 35,509 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $ — $ 750 Accounts payable 866 820 Accrued compensation 418 839 Income taxes payable 284 159 Accrued expenses and other liabilities 921 1,075 Total current liabilities 2,489 3,643 Long-term debt 12,848 12,846 Underfunded retirement plans 115 110 Deferred tax liabilities 56 53 Other long-term liabilities 1,843 1,954 Total liabilities 17,351 18,606 Stockholders’ equity: Preferred stock, $ 25 par value. Shares authorized – 10 ; none issued — — Common stock, $ 1 par value. Shares authorized – 2,400 ; shares issued – 1,741 1,741 1,741 Paid-in capital 4,058 3,935 Retained earnings 52,196 52,262 Treasury common stock at cost Shares: March 31, 2025 – 832 ; December 31, 2024 – 830 ( 41,442 ) ( 40,895 ) Accumulated other comprehensive income (loss), net of taxes (AOCI) ( 147 ) ( 140 ) Total stockholders’ equity 16,406 16,903 Total liabilities and stockholders’ equity $ 33,757 $ 35,509 See accompanying notes. 4 For Three Months Ended Consolidated Statements of Cash Flows March 31, (In millions) 2025 2024 Cash flows from operating activities Net income $ 1,179 $ 1,105 Adjustments to net income: Depreciation 424 346 Amortization of capitalized software 20 16 Stock compensation 116 106 Gains on sales of assets — ( 129 ) Deferred taxes ( 87 ) ( 71 ) Increase (decrease) from changes in: Accounts receivable ( 141 ) 116 Inventories ( 160 ) ( 84 ) Prepaid expenses and other current assets ( 7 ) ( 24 ) Accounts payable and accrued expenses ( 121 ) ( 77 ) Accrued compensation ( 427 ) ( 444 ) Income taxes payable 132 212 Changes in funded status of retirement plans ( 9 ) 17 Other ( 70 ) ( 72 ) Cash flows from operating activities 849 1,017 Cash flows from investing activities Capital expenditures ( 1,123 ) ( 1,248 ) Proceeds from U.S. CHIPS and Science Act (CHIPS Act) incentives 260 — Proceeds from asset sales — 192 Purchases of short-term investments ( 647 ) ( 4,864 ) Proceeds from short-term investments 2,807 2,631 Other ( 44 ) ( 40 ) Cash flows from investing activities 1,253 ( 3,329 ) Cash flows from financing activities Proceeds from issuance of long-term debt — 2,980 Repayment of debt ( 750 ) — Dividends paid ( 1,238 ) ( 1,183 ) Stock repurchases ( 653 ) ( 3 ) Proceeds from common stock transactions 118 65 Other ( 16 ) ( 28 ) Cash flows from financing activities ( 2,539 ) 1,831 Net change in cash and cash equivalents ( 437 ) ( 481 ) Cash and cash equivalents at beginning of period 3,200 2,964 Cash and cash equivalents at end of period $ 2,763 $ 2,483 Supplemental cash flow information Investment tax credit (ITC) used to reduce income taxes payable $ — $ — Proceeds from CHIPS Act incentives 260 — Total cash benefit related to the CHIPS Act $ 260 $ — See accompanying notes. 5 Notes to financial statements 1. Description of business, including segment and geographic area information We design and manufacture semiconductors that we sell to electronics designers and manufacturers all over the world. We have two reportable segments, Analog and Embedded Processing, each of which represents groups of products that have similar design and development requirements, product characteristics and manufacturing processes. Our segments reflect how our chief operating decision maker (CODM), which is our chief executive officer, allocates resources and measures results. • 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 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. Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments. Other includes DLP ® products, calculators and custom ASIC products. In Other, we also include items that are not used in evaluating the results of or in allocating resources to our segments. Examples of these items include acquisition, integration and restructuring charges, and certain corporate-level items, such as litigation expenses, environmental costs, insurance settlements, and gains and losses from other activities, including asset dispositions. We allocate the remainder of our expenses associated with corporate activities to our operating segments based on specific methodologies, such as percentage of operating expenses or headcount. Costs incurred by our centralized manufacturing and support organizations, including depreciation, are charged to the operating segments, including those in Other, on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided. With the exception of goodwill, we do not identify or allocate assets by operating segment, nor does the CODM evaluate operating segments using discrete asset information. We have no material intersegment revenue. The accounting policies of the segments are consistent with those described in the significant accounting policies and practices. Segment information For Three Months Ended March 31, 2025 Analog Embedded Processing Other Total Revenue $ 3,210 $ 647 $ 212 $ 4,069 Cost of revenue 1,296 375 85 1,756 Gross profit 1,914 272 127 2,313 Research and development 369 128 20 517 Selling, general and administrative 339 104 29 472 Operating profit $ 1,206 $ 40 $ 78 $ 1,324 6 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES For Three Months Ended March 31, 2024 Analog Embedded Processing Other Total Revenue $ 2,836 $ 652 $ 173 $ 3,661 Cost of revenue 1,154 335 77 1,566 Gross profit 1,682 317 96 2,095 Research and development 349 114 15 478 Selling, general and administrative 325 98 32 455 Restructuring charges/other — — ( 124 ) ( 124 ) Operating profit $ 1,008 $ 105 $ 173 $ 1,286 Geographic area information Our estimate for revenue based on the geographic location of our end customers’ headquarters, which represents where critical decisions are made, is as follows: For Three Months Ended March 31, 2025 2024 Revenue: United States $ 1,518 37 % $ 1,288 35 % China 826 20 623 17 Rest of Asia 438 11 401 11 Europe, Middle East and Africa (a) 936 23 955 26 Japan 275 7 330 9 Rest of world 76 2 64 2 Total revenue $ 4,069 100 % $ 3,661 100 % (a) Revenue from end customers headquartered in Germany was 11 % and 13 % in the first quarters of 2025 and 2024, respectively . 2. Basis of presentation and significant accounting policies and practices Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2024. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended March 31, 2025 and 2024, and the Consolidated Balance Sheet as of March 31, 2025, 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, 2024. The results for the three-month periods are not necessarily indicative of a full year’s results. 7 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Significant accounting policies and practices Earnings per share (EPS) We use the two-class method for calculating EPS because the restricted stock units (RSUs) we grant are participating securities containing nonforfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to RSUs and excluded from the calculation of income allocated to common stock. Computation and reconciliation of earnings per common share are as follows: For Three Months Ended March 31, 2025 2024 Net Income Shares EPS Net Income Shares EPS Basic EPS: Net income $ 1,179 $ 1,105 Income allocated to RSUs ( 6 ) ( 5 ) Income allocated to common stock $ 1,173 910 $ 1.29 $ 1,100 910 $ 1.21 Dilutive effect of stock compensation plans 6 7 Diluted EPS: Net income $ 1,179 $ 1,105 Income allocated to RSUs ( 6 ) ( 5 ) Income allocated to common stock $ 1,173 916 $ 1.28 $ 1,100 917 $ 1.20 Potentially dilutive securities representing 10 million and 14 million shares of common stock that were outstanding during the first quarters of 2025 and 2024, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive. Derivatives and hedging We use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments. We are exposed to variability in compensation charges related to certain deferred compensation obligations to employees. We use total return swaps to economically hedge this exposure and offset the related compensation expense, recognizing changes in the fair value of the swaps and the related deferred compensation liabilities in SG&A. In connection with the issuance of long-term debt, we may use financial derivatives such as treasury-rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions were not 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 material as of March 31, 2025. 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 March 31, 2025, the carrying value of long-term debt was $ 12.85 billion, and the estimated fair value was $ 11.89 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. 8 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 3. Income taxes Provision for income taxes is based on the following: For Three Months Ended March 31, 2025 2024 Taxes calculated using the estimated annual effective tax rate $ 166 $ 176 Discrete tax items ( 69 ) 12 Provision for income taxes $ 97 $ 188 Effective tax rate 8 % 15 % The effective tax rate differs from the 21 % U.S. statutory corporate tax rate due to the effect of U.S. tax benefits. 4. Valuation of debt and equity investments and certain liabilities Investments measured at fair value Money market funds, debt investments and mutual funds are stated at fair value, which is generally based on market prices or broker quotes. We classify all debt investments as available-for-sale. See Fair-value considerations . Unrealized gains and losses are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets, and any credit losses are recorded as an allowance for credit losses with an offset recognized in OI&E in our Consolidated Statements of Income. 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. Other investments Our other investments include equity-method investments and nonmarketable investments, which are not measured at fair value. These investments consist of interests in venture capital funds and other nonmarketable securities. Gains and losses from equity-method investments are recognized in OI&E based on our ownership share of the investee’s financial results. Nonmarketable securities are measured at cost with adjustments for observable changes in price or impairments. Gains and losses on nonmarketable investments are recognized in OI&E. 9 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Details of our investments are as follows: March 31, 2025 December 31, 2024 Cash and Cash Equivalents Short-Term Investments Long-Term Investments Cash and Cash Equivalents Short-Term Investments Long-Term Investments Measured at fair value: Money market funds $ 557 $ — $ — $ 762 $ — $ — Corporate obligations 633 494 — 694 796 — U.S. government and agency securities 1,095 1,649 — 752 3,485 — Non-U.S. government and agency securities 99 99 — 249 99 — Mutual funds — — 10 — — 11 Total 2,384 2,242 10 2,457 4,380 11 Other measurement basis: Equity-method investments — — 6 — — 8 Nonmarketable investments — — 4 — — 4 Total — — 10 — — 12 Cash on hand 379 — — 743 — — Total $ 2,763 $ 2,242 $ 20 $ 3,200 $ 4,380 $ 23 As of March 31, 2025, and December 31, 2024, unrealized gains and losses associated with our debt investments were not material. We did no t recognize any credit losses related to debt investments for the first three months of 2025 and 2024. The following table presents the aggregate maturities of our debt investments as of March 31, 2025: Fair Value One year or less $ 3,520 One to two years 549 Proceeds from sales, redemptions and maturities of short-term debt investments were $ 2.81 billion and $ 2.63 billion for the first quarters of 2025 and 2024, respectively. Gross realized gains and losses from these sales were not material. 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 in an orderly transaction between market participants on the measurement date. The three-level hierarchy described below indicates the inputs 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 measurement date. • Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the measurement date through correlation with market data. Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active and models or other pricing methodologies that do not require significant judgment. We utilize a third-party data service to provide Level 2 valuations, and we verify these valuations for reasonableness. 10 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES • Level 3 – Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management judgment. As of March 31, 2025, and December 31, 2024, we had no Level 3 assets or liabilities. The following are our assets and liabilities that were accounted for at fair value on a recurring basis. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value. March 31, 2025 December 31, 2024 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Money market funds $ 557 $ — $ 557 $ 762 $ — $ 762 Corporate obligations — 1,127 1,127 — 1,490 1,490 U.S. government and agency securities 1,697 1,047 2,744 2,591 1,646 4,237 Non-U.S. government and agency securities — 198 198 — 348 348 Mutual funds 10 — 10 11 — 11 Total assets $ 2,264 $ 2,372 $ 4,636 $ 3,364 $ 3,484 $ 6,848 Liabilities: Deferred compensation $ 402 $ — $ 402 $ 443 $ — $ 443 Total liabilities $ 402 $ — $ 402 $ 443 $ — $ 443 5. Postretirement benefit plans Expenses related to defined benefit and retiree health care benefit plans are as follows: U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit For Three Months Ended March 31, 2025 2024 2025 2024 2025 2024 Service cost $ 2 $ 2 $ — $ — $ 4 $ 4 Interest cost 6 6 3 3 14 14 Expected return on plan assets ( 4 ) ( 6 ) ( 3 ) ( 3 ) ( 18 ) ( 19 ) Recognized net actuarial losses (gains) 2 1 — ( 1 ) 1 3 Net periodic benefit costs (credits) $ 6 $ 3 $ — $ ( 1 ) $ 1 $ 2 6. Debt and lines of credit Short-term borrowings We maintain a line of credit to provide additional liquidity through bank loans and, if necessary, to support commercial paper borrowings. As of March 31, 2025, the aforementioned line of credit was a variable-rate, revolving credit facility from a consortium of investment-grade banks that allows us to borrow up to $ 1 billion until March 2026. 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, 2025, our credit facility was undrawn, and we had no commercial paper outstanding. Long-term debt In March 2025, we retired $ 750 million of maturing debt. 11 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Long-term debt outstanding is as follows: March 31, December 31, 2025 2024 Notes due 2025 at 1.375 % $ — $ 750 Notes due 2026 at 1.125 % 500 500 Notes due 2027 at 4.60 % 650 650 Notes due 2027 at 2.90 % 500 500 Notes due 2028 at 4.60 % 700 700 Notes due 2029 at 4.60 % 650 650 Notes due 2029 at 2.25 % 750 750 Notes due 2030 at 1.75 % 750 750 Notes due 2031 at 1.90 % 500 500 Notes due 2032 at 3.65 % 400 400 Notes due 2033 at 4.90 % 950 950 Notes due 2034 at 4.85 % 600 600 Notes due 2039 at 3.875 % 750 750 Notes due 2048 at 4.15 % 1,500 1,500 Notes due 2051 at 2.70 % 500 500 Notes due 2052 at 4.10 % 300 300 Notes due 2053 at 5.00 % 650 650 Notes due 2054 at 5.15 % 750 750 Notes due 2063 at 5.05 % 1,550 1,550 Total debt 12,950 13,700 Net unamortized discounts, premiums and issuance costs ( 102 ) ( 104 ) Total debt, including net unamortized discounts, premiums and issuance costs 12,848 13,596 Current portion of long-term debt — ( 750 ) Long-term debt $ 12,848 $ 12,846 Interest and debt expense was $ 128 million and $ 116 million for the first quarters of 2025 and 2024, respectively. This was net of the amortized discounts, premiums and issuance and other related costs. Capitalized interest was $ 4 million and $ 6 million for the first quarters of 2025 and 2024, respectively. 12 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 7. Stockholders’ equity Changes in equity are as follows: Common Stock Paid-in Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2024 $ 1,741 $ 3,935 $ 52,262 $ ( 40,895 ) $ ( 140 ) 2025 Net income — — 1,179 — — Dividends declared and paid ($ 1.36 per share) — — ( 1,238 ) — — Common stock issued for stock-based awards — 8 — 110 — Stock repurchases — — — ( 657 ) — Stock compensation — 116 — — — Other comprehensive income (loss), net of taxes — — — — ( 7 ) Dividend equivalents on RSUs — — ( 7 ) — — Other — ( 1 ) — — — Balance, March 31, 2025 $ 1,741 $ 4,058 $ 52,196 $ ( 41,442 ) $ ( 147 ) Common Stock Paid-in Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2023 $ 1,741 $ 3,362 $ 52,283 $ ( 40,284 ) $ ( 205 ) 2024 Net income — — 1,105 — — Dividends declared and paid ($ 1.30 per share) — — ( 1,183 ) — — Common stock issued for stock-based awards — ( 29 ) — 94 — Stock repurchases — — — ( 3 ) — Stock compensation — 106 — — — Other comprehensive income (loss), net of taxes — — — — 2 Dividend equivalents on RSUs — — ( 7 ) — — Other — — 1 — — Balance, March 31, 2024 $ 1,741 $ 3,439 $ 52,199 $ ( 40,193 ) $ ( 203 ) 8. 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 Our stated warranties for semiconductor products obligate us to repair, replace or credit the purchase price of a covered product back to the buyer. Product claim consideration may exceed the price of our products. 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 consolidated financial statements. 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. 13 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 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 consolidated financial statements. 9. Supplemental financial information Prepaid expenses and other current assets March 31, December 31, 2025 2024 CHIPS Act incentives $ 1,195 $ 904 Other 339 296 Total $ 1,534 $ 1,200 Other long-term assets March 31, December 31, 2025 2024 CHIPS Act incentives $ 1,869 $ 2,246 Other 1,096 1,102 Total $ 2,965 $ 3,348 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 first quarters of 2025 and 2024. The table below details where these transactions are recorded in our Consolidated Statements of Income. For Three Months Ended Impact to Related Statement of Income Lines March 31, 2025 2024 Net actuarial losses of defined benefit plans: Recognized net actuarial losses and settlement losses (a) $ 3 $ 3 Decrease to OI&E Tax effect ( 1 ) ( 1 ) Decrease to provision for income taxes Recognized within net income, net of taxes $ 2 $ 2 Decrease to net income (a) Detailed in Note 5 Effect on shares outstanding and treasury shares The following table reflects the changes in treasury shares: 2025 Balance, January 1 830 Repurchases 4 Shares issued for stock compensation ( 2 ) Balance, March 31 832 14