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Texas Instruments Inc. (NASDAQ:TXN)

Analysis of Goodwill and Intangible Assets

Advanced level

Goodwill and Intangible Asset Disclosure

Texas Instruments Inc., balance sheet: goodwill and intangible assets

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Developed technology 2,000  2,125  2,130  2,130  2,131 
Customer relationships —  810  810  810  810 
Other intangibles —  —  —  —  3 
Acquisition-related intangibles, gross carrying amount 2,000  2,935  2,940  2,940  2,944 
Accumulated amortization (1,660) (2,307) (1,994) (1,676) (1,361)
Acquisition-related intangibles, net 340  628  946  1,264  1,583 
Goodwill 4,362  4,362  4,362  4,362  4,362 
Goodwill and acquisition-related intangibles 4,702  4,990  5,308  5,626  5,945 

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

Item Description The company
Acquisition-related intangibles, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Texas Instruments Inc.’s acquisition-related intangibles, net decreased from 2017 to 2018 and from 2018 to 2019.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
Goodwill and acquisition-related intangibles Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Texas Instruments Inc.’s goodwill and acquisition-related intangibles decreased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Goodwill

Texas Instruments Inc., adjustments to financial statements

US$ in millions

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Adjustment to Total Assets
Total assets (as reported) 18,018  17,137  17,642  16,431  16,230 
Less: Goodwill 4,362  4,362  4,362  4,362  4,362 
Total assets (adjusted) 13,656  12,775  13,280  12,069  11,868 
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported) 8,907  8,994  10,337  10,473  9,946 
Less: Goodwill 4,362  4,362  4,362  4,362  4,362 
Stockholders’ equity (adjusted) 4,545  4,632  5,975  6,111  5,584 

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

Texas Instruments Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

Texas Instruments Inc., adjusted financial ratios

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Total Asset Turnover
Reported total asset turnover 0.80 0.92 0.85 0.81 0.80
Adjusted total asset turnover 1.05 1.24 1.13 1.11 1.10
Financial Leverage
Reported financial leverage 2.02 1.91 1.71 1.57 1.63
Adjusted financial leverage 3.00 2.76 2.22 1.97 2.13
Return on Equity (ROE)
Reported ROE 56.33% 62.04% 35.62% 34.33% 30.02%
Adjusted ROE 110.39% 120.47% 61.62% 58.83% 53.47%
Return on Assets (ROA)
Reported ROA 27.84% 32.56% 20.87% 21.88% 18.40%
Adjusted ROA 36.74% 43.68% 27.73% 29.79% 25.16%

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

Financial ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Texas Instruments Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 Texas Instruments Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Texas Instruments Inc.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Texas Instruments Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Texas Instruments Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Revenue 14,383  15,784  14,961  13,370  13,000 
Total assets 18,018  17,137  17,642  16,431  16,230 
Activity Ratio
Total asset turnover1 0.80 0.92 0.85 0.81 0.80
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Revenue 14,383  15,784  14,961  13,370  13,000 
Adjusted total assets 13,656  12,775  13,280  12,069  11,868 
Activity Ratio
Adjusted total asset turnover2 1.05 1.24 1.13 1.11 1.10

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

2019 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 14,383 ÷ 18,018 = 0.80

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 14,383 ÷ 13,656 = 1.05

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Texas Instruments Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Financial Leverage

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Total assets 18,018  17,137  17,642  16,431  16,230 
Stockholders’ equity 8,907  8,994  10,337  10,473  9,946 
Solvency Ratio
Financial leverage1 2.02 1.91 1.71 1.57 1.63
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets 13,656  12,775  13,280  12,069  11,868 
Adjusted stockholders’ equity 4,545  4,632  5,975  6,111  5,584 
Solvency Ratio
Adjusted financial leverage2 3.00 2.76 2.22 1.97 2.13

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

2019 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
= 18,018 ÷ 8,907 = 2.02

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 13,656 ÷ 4,545 = 3.00

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 Texas Instruments Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 5,017  5,580  3,682  3,595  2,986 
Stockholders’ equity 8,907  8,994  10,337  10,473  9,946 
Profitability Ratio
ROE1 56.33% 62.04% 35.62% 34.33% 30.02%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income 5,017  5,580  3,682  3,595  2,986 
Adjusted stockholders’ equity 4,545  4,632  5,975  6,111  5,584 
Profitability Ratio
Adjusted ROE2 110.39% 120.47% 61.62% 58.83% 53.47%

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

2019 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × 5,017 ÷ 8,907 = 56.33%

2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders’ equity
= 100 × 5,017 ÷ 4,545 = 110.39%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Texas Instruments Inc.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Return on Assets (ROA)

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Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
As Reported
Selected Financial Data (US$ in millions)
Net income 5,017  5,580  3,682  3,595  2,986 
Total assets 18,018  17,137  17,642  16,431  16,230 
Profitability Ratio
ROA1 27.84% 32.56% 20.87% 21.88% 18.40%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income 5,017  5,580  3,682  3,595  2,986 
Adjusted total assets 13,656  12,775  13,280  12,069  11,868 
Profitability Ratio
Adjusted ROA2 36.74% 43.68% 27.73% 29.79% 25.16%

Based on: 10-K (filing date: 2020-02-20), 10-K (filing date: 2019-02-22), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-24).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 5,017 ÷ 18,018 = 27.84%

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × 5,017 ÷ 13,656 = 36.74%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Texas Instruments Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.