Form 10-Q TEXAS INSTRUMENTS INC For: Mar 31

April 30, 2019 10:54 AM

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 2019

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

For the transition period from ___________ to ___________

Commission File Number 001-03761

 

TEXAS INSTRUMENTS INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

Delaware

75-0289970

(State of Incorporation)

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

 

 

 

 

12500 TI Boulevard, Dallas, Texas

75243

(Address of principal executive offices)

(Zip Code)

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

 

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

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).     Yes      No  

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

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

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

938,206,171

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

April 23, 2019

 


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

PART I - FINANCIAL INFORMATION

ITEM 1. Financial statements

 

 

For Three Months Ended

 

Consolidated Statements of Income

 

March 31,

 

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

 

2019

 

 

2018

 

Revenue

 

$

 

3,594

 

 

$

 

3,789

 

Cost of revenue (COR)

 

 

 

1,333

 

 

 

 

1,342

 

Gross profit

 

 

 

2,261

 

 

 

 

2,447

 

Research and development (R&D)

 

 

 

389

 

 

 

 

385

 

Selling, general and administrative (SG&A)

 

 

 

414

 

 

 

 

433

 

Acquisition charges

 

 

 

79

 

 

 

 

80

 

Restructuring charges/other

 

 

 

 

 

 

 

1

 

Operating profit

 

 

 

1,379

 

 

 

 

1,548

 

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

 

 

 

36

 

 

 

 

28

 

Interest and debt expense

 

 

 

38

 

 

 

 

23

 

Income before income taxes

 

 

 

1,377

 

 

 

 

1,553

 

Provision for income taxes

 

 

 

160

 

 

 

 

187

 

Net income

 

$

 

1,217

 

 

$

 

1,366

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (EPS):

 

 

 

 

 

 

 

 

 

 

Basic

 

$

 

1.29

 

 

$

 

1.38

 

Diluted

 

$

 

1.26

 

 

$

 

1.35

 

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding (millions):

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

939

 

 

 

 

983

 

Diluted

 

 

 

956

 

 

 

 

1,005

 

 

 

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

 

$

 

1,217

 

 

$

 

1,366

 

Income allocated to RSUs

 

 

 

(8

)

 

 

 

(11

)

Income allocated to common stock for diluted EPS

 

$

 

1,209

 

 

$

 

1,355

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

2


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

 

For Three Months Ended

 

Consolidated Statements of Comprehensive Income

 

March 31,

 

(Millions of dollars)

 

2019

 

 

2018

 

Net income

 

$

 

1,217

 

 

$

 

1,366

 

Other comprehensive income (loss), net of taxes

 

 

 

 

 

 

 

 

 

 

Net actuarial losses of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

Adjustments

 

 

 

(2

)

 

 

 

(16

)

Recognized within net income

 

 

 

10

 

 

 

 

9

 

Prior service credit of defined benefit plans:

 

 

 

 

 

 

 

 

 

 

Recognized within net income

 

 

 

 

 

 

 

(1

)

Other comprehensive income (loss)

 

 

 

8

 

 

 

 

(8

)

Total comprehensive income

 

$

 

1,225

 

 

$

 

1,358

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

March 31,

 

 

December 31,

 

Consolidated Balance Sheets

 

2019

 

 

2018

 

(Millions of dollars, except share amounts)

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

3,720

 

 

$

 

2,438

 

Short-term investments

 

 

 

366

 

 

 

 

1,795

 

Accounts receivable, net of allowances of ($17) and ($19)

 

 

 

1,440

 

 

 

 

1,207

 

Raw materials

 

 

 

191

 

 

 

 

181

 

Work in process

 

 

 

1,016

 

 

 

 

1,070

 

Finished goods

 

 

 

924

 

 

 

 

966

 

Inventories

 

 

 

2,131

 

 

 

 

2,217

 

Prepaid expenses and other current assets

 

 

 

294

 

 

 

 

440

 

Total current assets

 

 

 

7,951

 

 

 

 

8,097

 

Property, plant and equipment at cost

 

 

 

5,642

 

 

 

 

5,425

 

Accumulated depreciation

 

 

 

(2,324

)

 

 

 

(2,242

)

Property, plant and equipment

 

 

 

3,318

 

 

 

 

3,183

 

Long-term investments

 

 

 

281

 

 

 

 

251

 

Goodwill

 

 

 

4,362

 

 

 

 

4,362

 

Acquisition-related intangibles

 

 

 

549

 

 

 

 

628

 

Deferred tax assets

 

 

 

290

 

 

 

 

295

 

Capitalized software licenses

 

 

 

98

 

 

 

 

89

 

Overfunded retirement plans

 

 

 

96

 

 

 

 

92

 

Other long-term assets

 

 

 

498

 

 

 

 

140

 

Total assets

 

$

 

17,443

 

 

$

 

17,137

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

750

 

 

$

 

749

 

Accounts payable

 

 

 

477

 

 

 

 

478

 

Accrued compensation

 

 

 

342

 

 

 

 

724

 

Income taxes payable

 

 

 

113

 

 

 

 

103

 

Accrued expenses and other liabilities

 

 

 

477

 

 

 

 

420

 

Total current liabilities

 

 

 

2,159

 

 

 

 

2,474

 

Long-term debt

 

 

 

5,057

 

 

 

 

4,319

 

Underfunded retirement plans

 

 

 

120

 

 

 

 

118

 

Deferred tax liabilities

 

 

 

43

 

 

 

 

42

 

Other long-term liabilities

 

 

 

1,545

 

 

 

 

1,190

 

Total liabilities

 

 

 

8,924

 

 

 

 

8,143

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Participating cumulative preferred – None issued

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Shares issued – 1,740,815,939

 

 

 

1,741

 

 

 

 

1,741

 

Paid-in capital

 

 

 

1,927

 

 

 

 

1,950

 

Retained earnings

 

 

 

38,396

 

 

 

 

37,906

 

Treasury common stock at cost

 

 

 

 

 

 

 

 

 

 

Shares: March 31, 2019 – 802,016,668; December 31, 2018 – 795,665,646

 

 

 

(33,080

)

 

 

 

(32,130

)

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

 

 

 

(465

)

 

 

 

(473

)

Total stockholders’ equity

 

 

 

8,519

 

 

 

 

8,994

 

Total liabilities and stockholders’ equity

 

$

 

17,443

 

 

$

 

17,137

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

4


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

 

 

For Three Months Ended

 

Consolidated Statements of Cash Flows

 

March 31,

 

(Millions of dollars)

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

1,217

 

 

$

 

1,366

 

Adjustments to net income:

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

166

 

 

 

 

137

 

Amortization of acquisition-related intangibles

 

 

 

79

 

 

 

 

80

 

Amortization of capitalized software

 

 

 

13

 

 

 

 

12

 

Stock compensation

 

 

 

61

 

 

 

 

70

 

Gains on sales of assets

 

 

 

(2

)

 

 

 

 

Deferred taxes

 

 

 

4

 

 

 

 

(31

)

Increase (decrease) from changes in:

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

(233

)

 

 

 

(176

)

Inventories

 

 

 

86

 

 

 

 

(97

)

Prepaid expenses and other current assets

 

 

 

223

 

 

 

 

356

 

Accounts payable and accrued expenses

 

 

 

(67

)

 

 

 

(51

)

Accrued compensation

 

 

 

(373

)

 

 

 

(372

)

Income taxes payable

 

 

 

(94

)

 

 

 

(131

)

Changes in funded status of retirement plans

 

 

 

7

 

 

 

 

(15

)

Other

 

 

 

20

 

 

 

 

(36

)

Cash flows from operating activities

 

 

 

1,107

 

 

 

 

1,112

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

(251

)

 

 

 

(189

)

Proceeds from asset sales

 

 

 

2

 

 

 

 

 

Purchases of short-term investments

 

 

 

(149

)

 

 

 

(996

)

Proceeds from short-term investments

 

 

 

1,584

 

 

 

 

1,455

 

Other

 

 

 

(13

)

 

 

 

(4

)

Cash flows from investing activities

 

 

 

1,173

 

 

 

 

266

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

743

 

 

 

 

 

Dividends paid

 

 

 

(724

)

 

 

 

(611

)

Stock repurchases

 

 

 

(1,152

)

 

 

 

(873

)

Proceeds from common stock transactions

 

 

 

151

 

 

 

 

178

 

Other

 

 

 

(16

)

 

 

 

(11

)

Cash flows from financing activities

 

 

 

(998

)

 

 

 

(1,317

)

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

 

1,282

 

 

 

 

61

 

Cash and cash equivalents at beginning of period

 

 

 

2,438

 

 

 

 

1,656

 

Cash and cash equivalents at end of period

 

$

 

3,720

 

 

$

 

1,717

 

 

 

 

 

 

 

 

 

 

 

 

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, Signal Chain and High Volume.

 

Embedded Processing – consisting of the following product lines: Connected Microcontrollers and Processors.

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

 

 

March 31,

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

Analog

$

 

2,518

 

 

$

 

2,566

 

Embedded Processing

 

 

796

 

 

 

 

926

 

Other

 

 

280

 

 

 

 

297

 

Total revenue

$

 

3,594

 

 

$

 

3,789

 

 

 

 

 

 

 

 

 

 

 

Operating profit:

 

 

 

 

 

 

 

 

 

Analog

$

 

1,088

 

 

$

 

1,166

 

Embedded Processing

 

 

249

 

 

 

 

328

 

Other

 

 

42

 

 

 

 

54

 

Total operating profit

$

 

1,379

 

 

$

 

1,548

 

Geographic area information

The following geographic area information includes revenue based on product shipment destination. The revenue information is not necessarily indicative of the geographic area in which the end applications containing our products are ultimately consumed because our products tend to be shipped to the locations where our customers manufacture their products. Specifically, many of our products are shipped to our customers in China who may include these parts in the manufacture of their own end products, which they may in turn export to their customers around the world.

 

For Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

United States

$

 

477

 

 

$

 

504

 

Asia (a)

 

 

2,092

 

 

 

 

2,215

 

Europe, Middle East and Africa

 

 

743

 

 

 

 

771

 

Japan

 

 

191

 

 

 

 

220

 

Rest of world

 

 

91

 

 

 

 

79

 

Total revenue

$

 

3,594

 

 

$

 

3,789

 

(a)

Revenue from products shipped into China was $1.7 billion and $1.6 billion in the first quarters of 2019 and 2018, respectively.

 

 

6


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

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, 2018, except for the effects of adopting Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended March 31, 2019 and 2018, and the Consolidated Balance Sheet as of March 31, 2019, 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, 2018. The results for the three-month periods are not necessarily indicative of a full year’s results.

Significant accounting policies and practices

Leases

We determine if an arrangement is a lease at inception. Leases are included in other long-term assets, accrued expenses and other liabilities, and other long-term liabilities on our Consolidated Balance Sheets.

Lease assets represent our right to use underlying assets for the lease term, and lease liabilities represent our obligations to make lease payments over the lease term. On the commencement date, leases are evaluated for classification, and assets and liabilities are recognized based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at commencement in determining the present value of lease payments. Operating lease expense is generally recognized on a straight-line basis over the lease term. Our lease values include options to extend or not to terminate the lease when it is reasonably certain that we will exercise such options.

We have agreements with lease and non-lease components, which are accounted for as a single lease component. Leases with a lease term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

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, as shown in the table below. 

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

 

 

For Three Months Ended March 31,

 

 

2019

 

 

2018

 

 

Net

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

Income

 

 

Shares

 

 

EPS

 

 

Income

 

 

Shares

 

 

EPS

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

1,217

 

 

 

 

 

 

 

 

 

 

 

$

 

1,366

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

$

 

1,209

 

 

 

939

 

 

$

 

1.29

 

 

$

 

1,355

 

 

 

983

 

 

$

 

1.38

 

Dilutive effect of stock compensation plans

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 

1,217

 

 

 

 

 

 

 

 

 

 

 

$

 

1,366

 

 

 

 

 

 

 

 

 

 

Income allocated to RSUs

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

 

Income allocated to common stock

$

 

1,209

 

 

 

956

 

 

$

 

1.26

 

 

$

 

1,355

 

 

 

1,005

 

 

$

 

1.35

 

 

Potentially dilutive securities representing 9 million and 5 million shares of common stock that were outstanding during the first quarters of 2019 and 2018, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive.

7


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

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.

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.

Fair values of financial instruments

The fair values of our derivative financial instruments were not material as of March 31, 2019. 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. The carrying value of our long-term debt approximates the fair value as 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

ASU No. 2016-02, Leases (Topic 842)

We adopted ASU No. 2016-02, Leases (ASC 842) effective January 1, 2019, using the modified retrospective transition method applied to leases existing at, or entered into after, the adoption date. The reported results for 2019 reflect the application of the new accounting guidance, while the reported results for prior periods are not adjusted and continue to be reported in accordance with our historical accounting under ASC 840, Leases. In addition, we elected the package of practical expedients permitted under the transition guidance that allowed us to apply prior conclusions related to lease definition, classification and initial direct costs.

The adoption of the new standard resulted in the recognition of $229 million of lease liabilities with corresponding lease assets as of January 1, 2019. The standard did not materially impact our consolidated results of operations and had no impact on cash flows.

Other standards

The following standards were also adopted:

 

ASU

 

Description

 

Adopted Date

ASU No. 2017-12

 

Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

 

January 1, 2019

ASU No. 2018-14

 

Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans

 

January 1, 2019

Changes in accounting standards – standards not yet adopted

ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

This standard requires entities to use a current lifetime expected credit loss methodology to measure impairments of certain financial assets. Using this methodology will result in earlier recognition of losses than under the current incurred loss approach, which requires waiting to recognize a loss until it is probable of having been incurred. There are other provisions within the standard that affect how impairments of other financial assets may be recorded and presented, and that expand disclosures. This standard will be effective for our interim and annual periods beginning January 1, 2020, with early adoption permitted beginning January 1, 2019, and must be applied on a modified retrospective basis. We are currently evaluating the potential impact of this standard, but we do not expect it to have a material impact on our financial position and results of operations.

8


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Other standards

We are evaluating the impact of the following standards, but we do not expect them to have a material impact on our financial position and results of operations. We plan to adopt these standards as of their effective dates.

 

ASU

 

Description

 

Effective Date

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 16%, 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

 

 

March 31,

 

 

2019

 

 

2018

 

Taxes calculated using the estimated annual effective tax rate

$

 

220

 

 

$

 

316

 

Discrete tax items

 

 

(60

)

 

 

 

(129

)

Provision for income taxes

$

 

160

 

 

$

 

187

 

 

 

 

 

 

 

 

 

 

 

Actual effective tax rate

 

 

12

%

 

 

 

12

%

 

4. Valuation of debt and equity investments and certain liabilities

Debt and equity 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. Other-than-temporary impairments on available-for-sale debt securities are recorded 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.

Other equity 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.

9


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

 

Details of our investments are as follows:

 

 

March 31, 2019

 

 

December 31, 2018

 

 

Cash and Cash

 

 

Short-Term

 

 

Long-Term

 

 

Cash and Cash

 

 

Short-Term

 

 

Long-Term

 

 

Equivalents

 

 

Investments

 

 

Investments

 

 

Equivalents

 

 

Investments

 

 

Investments

 

Measured at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

 

1,073

 

 

$

 

 

 

$

 

 

 

$

 

747

 

 

$

 

 

 

$

 

 

Corporate obligations

 

 

865

 

 

 

 

266

 

 

 

 

 

 

 

 

473

 

 

 

 

748

 

 

 

 

 

U.S. government agency and Treasury securities

 

 

1,497

 

 

 

 

100

 

 

 

 

 

 

 

 

988

 

 

 

 

1,047

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

 

 

 

 

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

226

 

Total

 

 

3,435

 

 

 

 

366

 

 

 

 

250

 

 

 

 

2,208

 

 

 

 

1,795

 

 

 

 

226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other measurement basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-method investments

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

21

 

Non-marketable equity investments

 

 

 

 

 

 

 

 

 

 

4