Texas Instruments 10-Q 2022-06-30

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 June 30, 2022

☐			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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, par value $1.00			TXN			The Nasdaq Global Select Market

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 ☒

913,707,365

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

July 19, 2022

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

						For Three Months Ended												For Six Months Ended
Consolidated Statements of Income						June 30,												June 30,
(In millions, except per-share amounts)						2022						2021						2022						2021
Revenue						$	5,212					$	4,580					$	10,117					$	8,869
Cost of revenue (COR)						1,587						1,503						3,050						2,995
Gross profit						3,625						3,077						7,067						5,874
Research and development (R&D)						414						391						805						777
Selling, general and administrative (SG&A)						422						425						844						850
Acquisition charges						—						48						—						95
Restructuring charges/other						66						—						132						—
Operating profit						2,723						2,213						5,286						4,152
Other income (expense), net (OI&E)						7						73						22						119
Interest and debt expense						49						44						101						90
Income before income taxes						2,681						2,242						5,207						4,181
Provision for income taxes						390						311						715						497
Net income						$	2,291					$	1,931					$	4,492					$	3,684
Earnings per common share (EPS):
Basic						$	2.48					$	2.08					$	4.85					$	3.98
Diluted						$	2.45					$	2.05					$	4.80					$	3.92
Average shares outstanding:
Basic						920						923						922						923
Diluted						930						937						932						936
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						$	2,291					$	1,931					$	4,492					$	3,684
Income allocated to RSUs						(10)						(7)						(19)						(15)
Income allocated to common stock for diluted EPS						$	2,281					$	1,924					$	4,473					$	3,669
See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

						For Three Months Ended												For Six Months Ended
Consolidated Statements of Comprehensive Income						June 30,												June 30,
(In millions)						2022						2021						2022						2021
Net income						$	2,291					$	1,931					$	4,492					$	3,684
Other comprehensive income (loss)
Net actuarial losses of defined benefit plans:
Adjustments, net of tax effect of $8 and ($5); $6 and ($7)						(40)						16						(34)						21
Recognized within net income, net of tax effect of ($4) and ($2); ($5) and ($5)						16						8						18						16
Available-for-sale investments:
Unrealized losses, net of tax effect of $1 and $0; $2 and $0						(3)						—						(7)						—
Other comprehensive income (loss), net of taxes						(27)						24						(23)						37
Total comprehensive income						$	2,264					$	1,955					$	4,469					$	3,721
See accompanying notes.

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

						June 30,						December 31,
Consolidated Balance Sheets						2022						2021
(In millions, except par value)
Assets
Current assets:
Cash and cash equivalents						$	3,802					$	4,631
Short-term investments						4,585						5,108
Accounts receivable, net of allowances of ($12) and ($8)						2,190						1,701
Raw materials						305						245
Work in process						1,258						1,067
Finished goods						*

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Overview

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

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

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

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

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

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

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

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

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

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

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

Management’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. In the following discussion of our results of operations:

• Our segments represent groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results. See Note 1 to the financial statements for more information regarding our segments.

• When we discuss our results:

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

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

◦From time to time, our revenue and gross profit are affected by changes in demand for higher-priced or lower-priced products, which we refer to as changes in the “mix” of products shipped.

◦Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed. When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease. Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit margins increase.

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

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

The coronavirus (COVID-19) pandemic and its effects are impacting and will likely continue to impact market conditions and business operations across industries worldwide, including at TI. Therefore, we remain cautious about how the economy might behave for the next few years and continue to monitor potential impact on our operations.

Performance summary

Our second quarter revenue was $5.21 billion, net income was $2.29 billion and earnings per share (EPS) were $2.45.

Revenue increased 14% from the same quarter a year ago due to growth across markets.

Our cash flow from operations of $8.7 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the same period was $5.9 billion and 30% of revenue. This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter production.

Over the past 12 months we invested $3.2 billion in R&D and SG&A, invested $2.8 billion in capital expenditures and returned $6.2 billion to shareholders.

Results of operations – second quarter 2022 compared with second quarter 2021

Revenue of $5.21 billion increased $632 million, or 14%, due to higher revenue from Analog and, to a lesser extent, Embedded Processing. This increase benefited from higher prices and the mix of products shipped.

Gross profit of $3.63 billion was up $548 million, or 18%, primarily due to higher revenue. As a percentage of revenue, gross profit increased to 69.6% from 67.2%.

Operating expenses (R&D and SG&A) were $836 million compared with $816 million.

Restructuring charges/other was $66 million due to integration charges at our Lehi, Utah, manufacturing facility.

Operating profit was $2.72 billion, or 52.2% of revenue, compared with $2.21 billion, or 48.3% of revenue.

OI&E was $7 million of income compared with $73 million of income.

Our provision for income taxes was $390 million compared with $311 million. This increase was primarily due to higher income before income taxes.

Net income was $2.29 billion compared with $1.93 billion. EPS was $2.45 compared with $2.05.

Second quarter 2022 segment results

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

Analog (includes Power and Signal Chain product lines)

			Q2 2022						Q2 2021						Change
Revenue			$	3,992					$	3,464					15		%
Operating profit			2,226						1,778						25		%
Operating profit % of revenue			55.8		%				51.3		%

Analog revenue increased in both product lines, led by Signal Chain. Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing (includes microcontrollers and processors)

			Q2 2022						Q2 2021						Change
Revenue			$	821					$	780					5		%
Operating profit			324						312						4		%
Operating profit % of revenue			39.5		%				40.0		%

Embedded Processing revenue increased. Operating profit increased primarily due to higher revenue and associated gross profit.

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

			Q2 2022						Q2 2021						Change
Revenue			$	399					$	336					19		%
Operating profit*			173						123						41		%
Operating profit % of revenue			43.4		%				36.6		%
* Includes acquisition charges and restructuring charges/other

Other revenue increased $63 million, and operating profit increased $50 million.

Results of operations – first six months of 2022 compared with first six months of 2021

Revenue of $10.12 billion increased $1.25 billion, or 14%, due to higher revenue from Analog and, to a lesser extent, Embedded Processing. This increase benefited from higher prices and the mix of products shipped.

Gross profit of $7.07 billion was up $1.19 billion, or 20%, primarily due to higher revenue. As a percentage of revenue, gross profit increased to 69.9% from 66.2%.

Operating expenses were $1.65 billion compared with $1.63 billion.

Restructuring charges/other was $132 million due to integration charges at our Lehi, Utah, manufacturing facility.

Operating profit was $5.29 billion, or 52.2% of revenue, compared with $4.15 billion, or 46.8% of revenue.

OI&E was $22 million of income compared with $119 million of income.

Our provision for income taxes was $715 million compared with $497 million. This increase was due to higher income before income taxes and lower discrete tax benefits.

Net income was $4.49 billion compared with $3.68 billion. EPS was $4.80 compared with $3.92.

Year-to-date segment results

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

Analog

			YTD 2022						YTD 2021						Change
Revenue			$	7,808					$	6,744					16		%
Operating profit			4,376						3,424						28		%
Operating profit % of revenue			56.0		%				50.8		%

Analog revenue increased in both product lines, led by Signal Chain. Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing

			YTD 2022						YTD 2021						Change
Revenue			$	1,603					$	1,547					4		%
Operating profit			639						599						7		%
Operating profit % of revenue			39.9		%				38.7		%

Embedded Processing revenue increased. Operating profit increased primarily due to higher revenue and associated gross profit.

Other

			YTD 2022						YTD 2021						Change
Revenue			$	706					$	578					22		%
Operating profit*			271						129						110		%
Operating profit % of revenue			38.4		%				22.3		%
* Includes acquisition charges and restructuring charges/other

Other revenue increased $128 million, and operating profit increased $142 million.

Financial condition

At the end of the second quarter of 2022, total cash (cash and cash equivalents plus short-term investments) was $8.39 billion, a decrease of $1.35 billion from the end of 2021.

Accounts receivable were $2.19 billion, an increase of $489 million compared with the end of 2021. Days sales outstanding for the second quarter of 2022 were 38 compared with 32 at the end of 2021.

Inventory was $2.20 billion, an increase of $289 million from the end of 2021. Days of inventory for the second quarter of 2022 were 125 compared with 116 at the end of 2021.

Liquidity and capital resources

Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are cash and cash equivalents, short-term investments and access to debt markets. We also have a variable rate, revolving credit facility. As of June 30, 2022, our credit facility was undrawn, and we had no commercial paper outstanding. Cash flows from operating activities for the first six months of 2022 were $3.91 billion, a decrease of $59 million from the year-ago period due to higher cash used for working capital, partially offset by higher net income.

Investing activities for the first six months of 2022 used $443 million compared with $982 million in the year-ago period. Capital expenditures were $1.04 billion compared with $694 million in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods. As we continue to invest to strengthen our competitive advantage in manufacturing and technology as part of our long-term capacity planning, we expect our capital expenditures to be higher than historical levels. Short-term investments provided cash of $525 million compared with using cash of $279 million in the year-ago period.

Financing activities for the first six months of 2022 used $4.30 billion compared with $2.45 billion in the year-ago period. In 2022, we retired maturing debt of $500 million compared with $550 million in the year-ago period. Dividends paid were $2.12 billion compared with $1.88 billion in the year-ago period, reflecting an increased dividend rate. We used $1.77 billion to repurchase 10.7 million shares of our common stock compared with $246 million used in the year-ago period to repurchase 1.4 million shares. Employee exercises of stock options provided cash proceeds of $113 million compared with $250 million in the year-ago period.

We had $3.80 billion of cash and cash equivalents and $4.59 billion of short-term investments as of June 30, 2022. We believe we have the necessary financial resources and operating plans to fund our working capital needs, capital expenditures, dividend and debt-related payments, and other business requirements for at least the next 12 months.

Non-GAAP financial information

This MD&A includes references to free cash flow and ratios based on that measure. These are financial measures that were not prepared in accordance with generally accepted accounting principles in the United States (GAAP). Free cash flow was calculated by subtracting capital expenditures from the most directly comparable GAAP measure, cash flows from operating activities (also referred to as cash flow from operations).

We believe that free cash flow and the associated ratios provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to shareholders, as well as insight into our financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures.

Reconciliation to the most directly comparable GAAP measures is provided in the table below.

			For 12 Months Ended
			June 30,
			2022						2021						Change
Cash flow from operations (GAAP)			$	8,697					$	7,539					15		%
Capital expenditures			(2,808)						(1,052)
Free cash flow (non-GAAP)			$	5,889					$	6,487					(9)		%
Revenue			$	19,592					$	16,762
Cash flow from operations as a percentage of revenue (GAAP)			44.4		%				45.0		%
Free cash flow as a percentage of revenue (non-GAAP)			30.1		%				38.7		%

An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective. In addition, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Information concerning our risk factors is contained in Item 1A of our Form 10-K for the year ended December 31, 2021, and is incorporated by reference herein.

ITEM 2. Unregistered sales of equity securities and use of proceeds

The following table contains information regarding our purchases of our common stock during the quarter.

ISSUER PURCHASES OF EQUITY SECURITIES

Period						Total Number of Shares Purchased									Average Price Paid per Share									Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)									Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)
April 1, 2022 through April 30, 2022						321,257									$	171.86								321,257									$	9.46		billion
May 1, 2022 through May 31, 2022						2,769,034									169.57									2,764,737									8.99			billion
June 1, 2022 through June 30, 2022						4,723,935									157.07									4,723,935									8.25			billion
Total						7,814,226			(b)						$	162.11		(b)						7,809,929									$	8.25		billion (c)

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

(b)In addition to open-market purchases, 4,297 shares of common stock were surrendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units.

(c)As of June 30, 2022, this amount consisted of the remaining portion of the $12.0 billion authorized in September 2018. No expiration date has been specified for this authorization.

Designation of Exhibits in This Report						Description of Exhibit
3(a)						Restated Certificate of Incorporation of the Registrant, dated April 18, 1985, as amended (incorporated by reference to Exhibit 3(a) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014).
3(b)						By-Laws of the Registrant (incorporated by reference to Exhibit 3 of the Registrant’s Current Report on Form 8-K filed January 26, 2022).
31(a)						Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a).†
31(b)						Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a).†
32(a)						Certification by Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.†
32(b)						Certification by Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.†
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101.def						XBRL Taxonomy Extension Definition Linkbase Document.†
101.sch						XBRL Taxonomy Extension Schema Document.†
101.cal						XBRL Taxonomy Extension Calculation Linkbase Document.†
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101.pre						XBRL Taxonomy Extension Presentation Linkbase Document.†
104						Cover Page Interactive Data File (embedded within the Inline XBRL document).†
† Filed or furnished herewith.

Notice regarding forward-looking statements

This report includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as TI or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements herein that describe TI’s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements.

We urge you to carefully consider the following important factors that could cause actual results to differ materially from the expectations of TI or our management:

• The duration and scope of the COVID-19 pandemic, government and other third-party responses to it and the consequences for the global economy, including to our business and the businesses of our suppliers, customers and distributors;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Instability in the global credit and financial markets;

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

• Impairments of our non-financial assets.

For a more detailed discussion of these factors, see the Risk factors discussion in Item 1A of our most recent Form 10-K. The forward-looking statements included in this report are made only as of the date of this report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. If we do update any forward-looking statement, you should not infer that we will make additional updates with respect to that statement or any other forward-looking statement.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			TEXAS INSTRUMENTS INCORPORATED
			By:			/s/			Rafael R. Lizardi
						Rafael R. Lizardi, Senior Vice President and Chief Financial Officer

Date: July 27, 2022