Microsoft Excel LibreOffice Calc

Texas Instruments Inc. (TXN)

Analysis of Goodwill and Intangible Assets

Difficulty: Advanced

Goodwill and Intangible Assets Accounting Policy

Goodwill

Goodwill is reviewed for impairment annually or more frequently if certain impairment indicators arise. TI performs the annual goodwill impairment test as of October 1 for the reporting units, which compares the fair value for each reporting unit to its associated carrying value, including goodwill.

Source: 10-K (filing date: 2019-02-22).

Goodwill and Intangible Assets Disclosure

Texas Instruments Inc., Statement of Financial Position, Goodwill and Intangible Assets

US$ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Developed technology 2,125  2,130  2,130  2,131  2,135 
Customer relationships 810  810  810  810  810 
Other intangibles —  —  —  3  3 
Acquisition-related intangibles, gross carrying amount 2,935  2,940  2,940  2,944  2,948 
Accumulated amortization (2,307) (1,994) (1,676) (1,361) (1,046)
Acquisition-related intangibles, net 628  946  1,264  1,583  1,902 
Goodwill 4,362  4,362  4,362  4,362  4,362 
Goodwill and acquisition-related intangibles 4,990  5,308  5,626  5,945  6,264 

Based on: 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), 10-K (filing date: 2015-02-24).

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 declined from 2016 to 2017 and from 2017 to 2018.
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 declined from 2016 to 2017 and from 2017 to 2018.

Analyst Adjustments: Removal of Goodwill

Texas Instruments Inc., adjustments to financial data

US$ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Adjustment to Total Assets
Total assets (as reported) 17,137  17,642  16,431  16,230  17,722 
Less: Goodwill 4,362  4,362  4,362  4,362  4,362 
Total assets (adjusted) 12,775  13,280  12,069  11,868  13,360 
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported) 8,994  10,337  10,473  9,946  10,390 
Less: Goodwill 4,362  4,362  4,362  4,362  4,362 
Stockholders’ equity (adjusted) 4,632  5,975  6,111  5,584  6,028 

Based on: 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), 10-K (filing date: 2015-02-24).

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

Adjusted Ratios: Removal of Goodwill (Summary)

Texas Instruments Inc., adjusted ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Total Asset Turnover
Reported total asset turnover 0.92 0.85 0.81 0.80 0.74
Adjusted total asset turnover 1.24 1.13 1.11 1.10 0.98
Financial Leverage
Reported financial leverage 1.91 1.71 1.57 1.63 1.71
Adjusted financial leverage 2.76 2.22 1.97 2.13 2.22
Return on Equity (ROE)
Reported ROE 62.04% 35.62% 34.33% 30.02% 27.15%
Adjusted ROE 120.47% 61.62% 58.83% 53.47% 46.80%
Return on Assets (ROA)
Reported ROA 32.56% 20.87% 21.88% 18.40% 15.92%
Adjusted ROA 43.68% 27.73% 29.79% 25.16% 21.12%

Based on: 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), 10-K (filing date: 2015-02-24).

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 improved from 2016 to 2017 and from 2017 to 2018.
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 increased from 2016 to 2017 and from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Texas Instruments Inc.’s adjusted ROE improved from 2016 to 2017 and from 2017 to 2018.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Texas Instruments Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Texas Instruments Inc., Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Revenue 15,784  14,961  13,370  13,000  13,045 
Total assets 17,137  17,642  16,431  16,230  17,722 
Ratio
Total asset turnover1 0.92 0.85 0.81 0.80 0.74
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Revenue 15,784  14,961  13,370  13,000  13,045 
Adjusted total assets 12,775  13,280  12,069  11,868  13,360 
Ratio
Adjusted total asset turnover2 1.24 1.13 1.11 1.10 0.98

Based on: 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), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Total asset turnover = Revenue ÷ Total assets
= 15,784 ÷ 17,137 = 0.92

2 Adjusted total asset turnover = Revenue ÷ Adjusted total assets
= 15,784 ÷ 12,775 = 1.24

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 improved from 2016 to 2017 and from 2017 to 2018.

Adjusted Financial Leverage

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets 17,137  17,642  16,431  16,230  17,722 
Stockholders’ equity 8,994  10,337  10,473  9,946  10,390 
Ratio
Financial leverage1 1.91 1.71 1.57 1.63 1.71
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets 12,775  13,280  12,069  11,868  13,360 
Adjusted stockholders’ equity 4,632  5,975  6,111  5,584  6,028 
Ratio
Adjusted financial leverage2 2.76 2.22 1.97 2.13 2.22

Based on: 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), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Financial leverage = Total assets ÷ Stockholders’ equity
= 17,137 ÷ 8,994 = 1.91

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 12,775 ÷ 4,632 = 2.76

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 increased from 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Equity (ROE)

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income 5,580  3,682  3,595  2,986  2,821 
Stockholders’ equity 8,994  10,337  10,473  9,946  10,390 
Ratio
ROE1 62.04% 35.62% 34.33% 30.02% 27.15%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income 5,580  3,682  3,595  2,986  2,821 
Adjusted stockholders’ equity 4,632  5,975  6,111  5,584  6,028 
Ratio
Adjusted ROE2 120.47% 61.62% 58.83% 53.47% 46.80%

Based on: 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), 10-K (filing date: 2015-02-24).

2018 Calculations

1 ROE = 100 × Net income ÷ Stockholders’ equity
= 100 × 5,580 ÷ 8,994 = 62.04%

2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders’ equity
= 100 × 5,580 ÷ 4,632 = 120.47%

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 2016 to 2017 and from 2017 to 2018.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income 5,580  3,682  3,595  2,986  2,821 
Total assets 17,137  17,642  16,431  16,230  17,722 
Ratio
ROA1 32.56% 20.87% 21.88% 18.40% 15.92%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Net income 5,580  3,682  3,595  2,986  2,821 
Adjusted total assets 12,775  13,280  12,069  11,868  13,360 
Ratio
Adjusted ROA2 43.68% 27.73% 29.79% 25.16% 21.12%

Based on: 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), 10-K (filing date: 2015-02-24).

2018 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 5,580 ÷ 17,137 = 32.56%

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × 5,580 ÷ 12,775 = 43.68%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Texas Instruments Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.