TEXAS INSTRUMENTS INC 10-Q

ITEM 1. Financial statements For Three Months Ended For Nine Months Ended Consolidated Statements of Income September 30, September 30, (Millions of dollars, except share and per-share amounts) 2020 2019 2020 2019 Revenue $ 3,817 $ 3,771 $ 10,385 $ 11,033 Cost of revenue (COR) 1,364 1,325 3,762 3,966 Gross profit 2,453 2,446 6,623 7,067 Research and development (R&D) 386 379 1,142 1,158 Selling, general and administrative (SG&A) 407 399 1,225 1,233 Acquisition charges 51 79 151 238 Restructuring charges/other — — 24 ( 36 ) Operating profit 1,609 1,589 4,081 4,474 Other income (expense), net (OI&E) 27 34 151 122 Interest and debt expense 49 43 142 125 Income before income taxes 1,587 1,580 4,090 4,471 Provision for income taxes 234 155 183 524 Net income $ 1,353 $ 1,425 $ 3,907 $ 3,947 Earnings per common share (EPS): Basic $ 1.47 $ 1.51 $ 4.22 $ 4.19 Diluted $ 1.45 $ 1.49 $ 4.17 $ 4.12 Average shares outstanding (millions): Basic 917 935 921 937 Diluted 929 950 933 953 A portion of net income is allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents. Diluted EPS is calculated using the following: Net income $ 1,353 $ 1,425 $ 3,907 $ 3,947 Income allocated to RSUs ( 6 ) ( 8 ) ( 19 ) ( 25 ) Income allocated to common stock for diluted EPS $ 1,347 $ 1,417 $ 3,888 $ 3,922 See accompanying notes. 2 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES For Three Months Ended For Nine Months Ended Consolidated Statements of Comprehensive Income September 30, September 30, (Millions of dollars) 2020 2019 2020 2019 Net income $ 1,353 $ 1,425 $ 3,907 $ 3,947 Other comprehensive income (loss) Net actuarial losses of defined benefit plans: Adjustments, net of tax effect of $ 3 and ($ 2 ); $ 4 and $ 1 ( 7 ) 5 ( 8 ) — Recognized within net income, net of tax effect of ($ 2 ) and ($ 3 ); ($ 7 ) and ($ 10 ) 7 9 21 30 Prior service credit of defined benefit plans: Recognized within net income, net of tax effect of $ 0 and $ 0 ; $ 0 and $ 0 ( 1 ) — ( 1 ) — Other comprehensive income (loss), net of taxes ( 1 ) 14 12 30 Total comprehensive income $ 1,352 $ 1,439 $ 3,919 $ 3,977 See accompanying notes. 3 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES September 30, December 31, Consolidated Balance Sheets 2020 2019 (Millions of dollars, except share amounts) Assets Current assets: Cash and cash equivalents $ 2,822 $ 2,437 Short-term investments 2,696 2,950 Accounts receivable, net of allowances of ($ 12 ) and ($ 8 ) 1,392 1,074 Raw materials 192 176 Work in process 959 916 Finished goods 921 909 Inventories 2,072 2,001 Prepaid expenses and other current assets 277 299 Total current assets 9,259 8,761 Property, plant and equipment at cost 5,698 5,740 Accumulated depreciation ( 2,508 ) ( 2,437 ) Property, plant and equipment 3,190 3,303 Long-term investments 47 300 Goodwill 4,362 4,362 Acquisition-related intangibles 189 340 Deferred tax assets 299 197 Capitalized software licenses 133 69 Overfunded retirement plans 227 218 Other long-term assets 501 468 Total assets $ 18,207 $ 18,018 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $ 550 $ 500 Accounts payable 411 388 Accrued compensation 656 714 Income taxes payable 44 46 Accrued expenses and other liabilities 524 475 Total current liabilities 2,185 2,123 Long-term debt 6,247 5,303 Underfunded retirement plans 103 93 Deferred tax liabilities 69 78 Other long-term liabilities 1,278 1,514 Total liabilities 9,882 9,111 Stockholders’ equity: Preferred stock, $ 25 par value. Authorized – 10,000,000 shares Participating cumulative preferred – None issued — — Common stock, $ 1 par value. Authorized – 2,400,000,000 shares Shares issued – 1,740,815,939 1,741 1,741 Paid-in capital 2,257 2,110 Retained earnings 41,305 39,898 Treasury common stock at cost Shares: September 30, 2020 – 823,174,578 ; December 31, 2019 – 808,784,381 ( 36,643 ) ( 34,495 ) Accumulated other comprehensive income (loss), net of taxes (AOCI) ( 335 ) ( 347 ) Total stockholders’ equity 8,325 8,907 Total liabilities and stockholders’ equity $ 18,207 $ 18,018 See accompanying notes. 4 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES For Nine Months Ended Consolidated Statements of Cash Flows September 30, (Millions of dollars) 2020 2019 Cash flows from operating activities Net income $ 3,907 $ 3,947 Adjustments to net income: Depreciation 553 522 Amortization of acquisition-related intangibles 151 238 Amortization of capitalized software 45 40 Stock compensation 182 176 Gains on sales of assets ( 3 ) ( 23 ) Deferred taxes ( 115 ) 31 Increase (decrease) from changes in: Accounts receivable ( 318 ) ( 135 ) Inventories ( 71 ) 177 Prepaid expenses and other current assets — 285 Accounts payable and accrued expenses 60 ( 64 ) Accrued compensation ( 48 ) ( 115 ) Income taxes payable ( 316 ) ( 200 ) Changes in funded status of retirement plans 16 26 Other ( 29 ) ( 10 ) Cash flows from operating activities 4,014 4,895 Cash flows from investing activities Capital expenditures ( 437 ) ( 684 ) Proceeds from asset sales 3 30 Purchases of short-term investments ( 3,435 ) ( 1,374 ) Proceeds from short-term investments 3,958 2,004 Other ( 15 ) 25 Cash flows from investing activities 74 1 Cash flows from financing activities Proceeds from issuance of long-term debt 1,498 1,491 Repayment of debt ( 500 ) ( 750 ) Dividends paid ( 2,489 ) ( 2,167 ) Stock repurchases ( 2,538 ) ( 2,471 ) Proceeds from common stock transactions 356 491 Other ( 30 ) ( 35 ) Cash flows from financing activities ( 3,703 ) ( 3,441 ) Net change in cash and cash equivalents 385 1,455 Cash and cash equivalents at beginning of period 2,437 2,438 Cash and cash equivalents at end of period $ 2,822 $ 3,893 See accompanying notes. 5 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Notes to financial statements 1. Description of business, including segment and geographic area information We design, make and sell semiconductors to electronics designers and manufacturers all over the world. We have two reportable segments, which are established along major categories of products as follows: • Analog – consisting of the following product lines: Power and Signal Chain. • Embedded Processing – consisting of the following product lines: Connected Microcontrollers and Processors. During the third quarter, we reorganized the product lines within our Analog segment to simplify our business structure into our Power and Signal Chain product lines. These changes had no effect on either our previously reported consolidated financial statements or on our reportable segment results. We report the results of our remaining business activities in Other. Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments. Other includes DLP ® products, calculators and custom ASIC products. Our centralized manufacturing and support organizations, such as facilities, procurement and logistics, provide support to our operating segments, including those in Other. Costs incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided. Segment information For Three Months Ended For Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue: Analog $ 2,865 $ 2,674 $ 7,759 $ 7,726 Embedded Processing 651 724 1,850 2,310 Other 301 373 776 997 Total revenue $ 3,817 $ 3,771 $ 10,385 $ 11,033 Operating profit: Analog $ 1,320 $ 1,231 $ 3,398 $ 3,427 Embedded Processing 187 233 494 747 Other (a) 102 125 189 300 Total operating profit $ 1,609 $ 1,589 $ 4,081 $ 4,474 (a) Includes acquisition charges and restructuring charges/other 6 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Geographic area information The following geographic area information includes revenue, based on product shipment destination. The geographic revenue information does not necessarily reflect end demand by geography because our products tend to be shipped to the locations where our customers manufacture their products. For Three Months Ended For Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue: United States $ 440 $ 504 $ 1,179 $ 1,468 Asia (a) 2,555 2,263 6,756 6,512 Europe, Middle East and Africa 578 699 1,648 2,151 Japan 140 198 523 607 Rest of world 104 107 279 295 Total revenue $ 3,817 $ 3,771 $ 10,385 $ 11,033 (a) Revenue from products shipped into China was $ 2.2 billion and $ 1.9 billion in the third quarters of 2020 and 2019, respectively, and $ 5.7 billion and $ 5.4 billion in the first nine months of 2020 and 2019, respectively, which includes shipments to customers that manufacture in China and then export end products to their customers around the world, as well as distributors that transship inventory through China to service other countries. 2. Basis of presentation and significant accounting policies and practices Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2019. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2020 and 2019, and the Consolidated Balance Sheet as of September 30, 2020, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Because the consolidated interim financial statements do not include all of the information and notes required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2019. The results for the three- and nine-month periods are not necessarily indicative of a full year’s results. Significant accounting policies and practices Earnings per share (EPS) We use the two-class method for calculating EPS because the restricted stock units (RSUs) we grant are participating securities containing non-forfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to RSUs and excluded from the calculation of income allocated to common stock. 7 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Computation and reconciliation of earnings per common share are as follows (shares in millions): For Three Months Ended September 30, 2020 2019 Net Income Shares EPS Net Income Shares EPS Basic EPS: Net income $ 1,353 $ 1,425 Income allocated to RSUs ( 6 ) ( 9 ) Income allocated to common stock $ 1,347 917 $ 1.47 $ 1,416 935 $ 1.51 Dilutive effect of stock compensation plans 12 15 Diluted EPS: Net income $ 1,353 $ 1,425 Income allocated to RSUs ( 6 ) ( 8 ) Income allocated to common stock $ 1,347 929 $ 1.45 $ 1,417 950 $ 1.49 For Nine Months Ended September 30, 2020 2019 Net Income Shares EPS Net Income Shares EPS Basic EPS: Net income $ 3,907 $ 3,947 Income allocated to RSUs ( 19 ) ( 25 ) Income allocated to common stock $ 3,888 921 $ 4.22 $ 3,922 937 $ 4.19 Dilutive effect of stock compensation plans 12 16 Diluted EPS: Net income $ 3,907 $ 3,947 Income allocated to RSUs ( 19 ) ( 25 ) Income allocated to common stock $ 3,888 933 $ 4.17 $ 3,922 953 $ 4.12 Potentially dilutive securities representing 3 million and 6 million shares of common stock that were outstanding during the third quarters of 2020 and 2019, respectively, and 4 million and 7 million shares outstanding during the first nine months of 2020 and 2019, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive. Derivatives and hedging We use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments. We are exposed to variability in compensation charges related to certain deferred compensation obligations to employees. We use total return swaps to economically hedge this exposure and offset the related compensation expense, recognizing changes in the value of the swaps and the related deferred compensation liabilities in SG&A. In connection with the issuance of long-term debt, we may use financial derivatives such as treasury-rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material. We do not use derivatives for speculative or trading purposes. 8 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Fair values of financial instruments The fair values of our derivative financial instruments were not material as of September 30, 2020. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our deferred compensation liabilities, are carried at fair value. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. As of September 30, 2020, the carrying value of long-term debt, including the current portion, was $ 6.80 billion, and the estimated fair value was $ 7.73 billion. The estimated fair value is measured using broker-dealer quotes, which are Level 2 inputs. See Note 4 for a description of fair value and the definition of Level 2 inputs. Changes in accounting standards – adopted standards for current period We adopted the following Accounting Standards Updates (ASU) during the current period, none of which had a material impact on our financial position or results of operations. ASU Description Adopted Date ASU No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments January 1, 2020 ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement January 1, 2020 ASU No. 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 3. Income taxes Our estimated annual effective tax rate is about 14 %, which does not include discrete tax items. This differs from the 21 % statutory corporate tax rate due to the effect of U.S. tax benefits. Provision for income taxes is based on the following: For Three Months Ended For Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Taxes calculated using the estimated annual effective tax rate $ 231 $ 257 $ 561 $ 715 Discrete tax items 3 ( 102 ) ( 378 ) ( 191 ) Provision for income taxes $ 234 $ 155 $ 183 $ 524 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. 4. Valuation of debt and equity investments and certain liabilities Investments measured at fair value Available-for-sale debt investments and trading securities are stated at fair value, which is generally based on market prices or broker quotes. See Fair-value considerations below. Unrealized gains and losses from available-for-sale debt securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets and any credit losses on available-for-sale debt securities are recorded as an allowance for credit losses with an offset recognized in OI&E in our Consolidated Statements of Income. We classify certain mutual funds as trading securities. These mutual funds hold a variety of debt and equity investments intended to generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual funds and the related deferred compensation liabilities in SG&A. 9 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Other investments Our other investments include equity-method investments and non-marketable equity investments, which are not measured at fair value. These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from equity-method investments are recognized in OI&E based on our ownership share of the investee’s financial results. Non-marketable equity securities are measured at cost with adjustments for observable changes in price or impairments. Gains and losses on non-marketable equity investments are recognized in OI&E. Details of our investments are as follows: September 30, 2020 December 31, 2019 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 $ 911 $ — $ — $ 1,213 $ — $ — Corporate obligations 341 256 — 174 1,216 — U.S. government agency and Treasury securities 1,047 2,440 — 604 1,734 — Trading securities: Mutual funds — — 16 — — 272 Total 2,299 2,696 16 1,991 2,950 272 Other measurement basis: Equity-method investments — — 27 — — 24 Non-marketable equity investments — — 4 — — 4 Cash on hand 523 — — 446 — — Total $ 2,822 $ 2,696 $ 47 $ 2,437 $ 2,950 $ 300 As of September 30, 2020 and December 31, 2019, unrealized gains and losses associated with our available-for-sale investments were not material. We did 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. Gross realized gains and losses from these sales were not material. During the first nine months of 2020, we entered into total return swaps to economically hedge the variability of certain deferred compensation obligations to employees. As a result, we received proceeds of $ 253 million from the sale of investments in mutual funds that were previously being utilized to offset this exposure. Fair-value considerations We measure and report certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level hierarchy described below indicates the extent and level of judgment used to estimate fair-value measurements. • Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. 10 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES • Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. We utilize a third-party data service to provide Level 2 valuations. We verify these valuations for reasonableness relative to unadjusted quotes obtained from brokers or dealers based on observable prices for similar assets in active markets. • Level 3 – Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models that utilize management estimates of market participant assumptions. As of September 30, 2020, and December 31, 2019, we had no Level 3 assets or liabilities. The following are our assets and liabilities that were accounted for at fair value on a recurring basis. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value. September 30, 2020 December 31, 2019 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Money market funds $ 911 $ — $ 911 $ 1,213 $ — $ 1,213 Corporate obligations — 597 597 — 1,390 1,390 U.S. government agency and Treasury securities 3,487 — 3,487 2,338 — 2,338 Mutual funds 16 — 16 272 — 272 Total assets $ 4,414 $ 597 $ 5,011 $ 3,823 $ 1,390 $ 5,213 Liabilities: Deferred compensation $ 314 $ — $ 314 $ 298 $ — $ 298 Total liabilities $ 314 $ — $ 314 $ 298 $ — $ 298 5. Goodwill and acquisition-related intangibles Goodwill was $ 4.36 billion as of September 30, 2020 and December 31, 2019. There was 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. 11 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 6. Postretirement benefit plans Expense related to defined benefit and retiree health care benefit plans is as follows: U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. 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 U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit For Nine Months Ended September 30, 2020 2019 2020 2019 2020 2019 Service cost $ 14 $ 13 $ 2 $ 2 $ 25 $ 23 Interest cost 24 28 9 11 28 33 Expected return on plan assets ( 27 ) ( 31 ) ( 8 ) ( 11 ) ( 58 ) ( 64 ) Recognized net actuarial loss 5 8 — — 11 21 Amortization of prior service cost (credit) — — ( 1 ) ( 1 ) — 1 Net periodic benefit costs 16 18 2 1 6 14 Settlement losses 10 9 — — 2 2 Total, including other postretirement losses $ 26 $ 27 $ 2 $ 1 $ 8 $ 16 7. 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, 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. 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. 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. 12 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Long-term debt outstanding is as follows: September 30, December 31, 2020 2019 Notes due 2020 at 1.75 % $ — $ 500 Notes due 2021 at 2.75 % 550 550 Notes due 2022 at 1.85 % 500 500 Notes due 2023 at 2.25 % 500 500 Notes due 2024 at 2.625 % 300 300 Notes due 2025 at 1.375 % 750 — Notes due 2027 at 2.90 % 500 500 Notes due 2029 at 2.25 % 750 750 Notes due 2030 at 1.75 % 750 — Notes due 2039 at 3.875 % 750 750 Notes due 2048 at 4.15 % 1,500 1,500 Total debt 6,850 5,850 Net unamortized discounts, premiums and issuance costs ( 53 ) ( 47 ) Total debt, including net unamortized discounts, premiums and issuance costs 6,797 5,803 Current portion of long-term debt ( 550 ) ( 500 ) Long-term debt $ 6,247 $ 5,303 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. This was net of the amortized discounts, premiums and issuance costs. Capitalized interest was not material. 13 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 8. Stockholders’ equity Changes in equity are as follows: Common Stock Paid-in Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2019 $ 1,741 $ 2,110 $ 39,898 $ ( 34,495 ) $ ( 347 ) 2020 Net income — — 1,174 — — Dividends declared and paid ($ 0.90 per share) — — ( 841 ) — — Common stock issued for stock-based awards — ( 77 ) — 223 — Stock repurchases — — — ( 1,730 ) — Stock compensation — 63 — — — Other comprehensive income (loss), net of taxes — — — — 19 Dividend equivalents on RSUs — — ( 4 ) — — Balance, March 31, 2020 1,741 2,096 40,227 ( 36,002 ) ( 328 ) 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 ) 14 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Common Stock Paid-in Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2018 $ 1,741 $ 1,950 $ 37,906 $ ( 32,130 ) $ ( 473 ) 2019 Net income — — 1,217 — — Dividends declared and paid ($ 0.77 per share) — — ( 724 ) — — Common stock issued for stock-based awards — ( 84 ) — 235 — Stock repurchases — — — ( 1,185 ) — Stock compensation — 61 — — — Other comprehensive income (loss), net of taxes — — — — 8 Dividend equivalents on RSUs — — ( 4 ) — — Other — — 1 — — Balance, March 31, 2019 1,741 1,927 38,396 ( 33,080 ) ( 465 ) 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 ) 9. 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. 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. 15 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 financial condition, results of operations or liquidity. 10. 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. 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 Net actuarial losses of defined benefit plans: Recognized net actuarial loss and settlement losses (a) $ 9 $ 12 $ 28 $ 40 Decrease to OI&E Tax effect ( 2 ) ( 3 ) ( 7 ) ( 10 ) Decrease to provision for income taxes Recognized within net income, net of taxes $ 7 $ 9 $ 21 $ 30 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 6. 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. 16