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April 24, 2018

TI reports 1Q18 financial results and shareholder returns

DALLAS, April 24, 2018 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported first-quarter revenue of $3.79 billion, net income of $1.37 billion and earnings per share of $1.35. Earnings per share include 14 cents in tax-related benefits not in the company's original guidance.

Regarding the company's performance and returns to shareholders, Rich Templeton, TI's chairman, president and CEO, made the following comments:

  • "Revenue increased 11 percent from the same quarter a year ago. Demand for our Analog and Embedded Processing products continued to be strong in the industrial and automotive markets.
  • "Our cash flow from operations of $5.7 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 17 percent from a year ago to $4.9 billion, or 32.1 percent 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 Analog production.
  • "We have returned $5.1 billion to owners in the past 12 months through stock repurchases and dividends, consistent with our strategy to return to owners all of our free cash flow. Over the last 12 months, our dividends represented 45 percent of free cash flow, emphasizing their sustainability.
  • "TI's second-quarter outlook is for revenue in the range of $3.78 billion to $4.10 billion, and earnings per share between $1.19 and $1.39, which includes an estimated $10 million discrete tax benefit.
  • "We now expect our ongoing annual operating tax rate to be about 16 percent starting in 2019 and 20 percent in 2018, lower than our previous expectations of 18 percent and 23 percent, respectively."

Free cash flow, a non-GAAP financial measure, is cash flow from operations less capital expenditures.

Earnings summary

Amounts are in millions of dollars, except per-share amounts.

   

1Q18

 

1Q17

 

Change

Revenue

$

3,789

$

3,402

 

11%

Operating profit

$

1,548

$

1,252

 

24%

Net income

$

1,366

$

997

 

37%

Earnings per share

$

1.35

$

0.97

 

39%

 

Cash generation

Amounts are in millions of dollars.

         

Trailing 12 Months

     

1Q18

   

1Q18

   

1Q17

 

Change

Cash flow from operations

 

$

1,112

 

$

5,680

 

$

4,756

 

19%

Capital expenditures

 

$

189

 

$

757

 

$

534

 

42%

Free cash flow

 

$

923

 

$

4,923

 

$

4,222

 

17%

Free cash flow % of revenue

         

32.1%

   

30.7%

   

 

Cash return

Amounts are in millions of dollars.

         

Trailing 12 Months

     

1Q18

   

1Q18

   

1Q17

 

Change

Dividends paid

 

$

611

 

$

2,215

 

$

1,763

 

26%

Stock repurchases

 

$

873

 

$

2,879

 

$

2,052

 

40%

Total cash returned

 

$

1,484

 

$

5,094

 

$

3,815

 

34%

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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

 
   

For Three Months Ended

   

March 31,

   

2018

 

2017

Revenue

 

$

3,789

 

$

3,402

Cost of revenue (COR)

   

1,342

   

1,258

Gross profit

   

2,447

   

2,144

Research and development (R&D)

   

385

   

369

Selling, general and administrative (SG&A)

   

433

   

439

Acquisition charges

   

80

   

80

Restructuring charges/other

   

1

   

4

Operating profit

   

1,548

   

1,252

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

   

28

   

21

Interest and debt expense

   

23

   

18

Income before income taxes

   

1,553

   

1,255

Provision for income taxes

   

187

   

258

Net income

 

$

1,366

 

$

997

             

Diluted earnings per common share

 

$

1.35

 

$

.97

             

Average shares outstanding (millions):

           

Basic

   

983

   

998

Diluted

   

1,005

   

1,019

             

Cash dividends declared per common share

 

$

.62

 

$

.50

             
 

Supplemental Information

(Quarterly, except as noted)

 

Provision for income taxes is based on the following:

 

Operating taxes (calculated using the estimated annual effective tax rate)

 

$

316

 

$

382

Discrete tax items

   

(129)

   

(124)

Provision for income taxes (effective taxes)

 

$

187

 

$

258

 

Annual operating tax rate

   

20%

   

30%

Effective tax rate

   

12%

   

21%

 

As a result of accounting rule ASC 260, which requires a portion of Net income to be allocated to unvested restricted stock units
(RSUs) on which we pay dividend equivalents, diluted EPS is calculated using the following:

 

Net income

 

$

1,366

 

$

997

Income allocated to RSUs

   

(11)

   

(10)

Income allocated to common stock for diluted EPS

 

$

1,355

 

$

987

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

March 31,

   

2018

 

2017

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

1,717

 

$

1,073

Short-term investments

   

2,362

   

1,976

Accounts receivable, net of allowances of ($8) and ($11)

   

1,454

   

1,337

Raw materials

   

144

   

102

Work in process

   

1,076

   

1,017

Finished goods

   

812

   

724

Inventories

   

2,032

   

1,843

Prepaid expenses and other current assets

   

1,025

   

811

Total current assets

   

8,590

   

7,040

Property, plant and equipment at cost

   

4,907

   

4,833

Accumulated depreciation

   

(2,171)

   

(2,332)

Property, plant and equipment

   

2,736

   

2,501

Long-term investments

   

271

   

241

Goodwill

   

4,362

   

4,362

Acquisition-related intangibles

   

866

   

1,184

Deferred tax assets

   

218

   

361

Capitalized software licenses

   

102

   

116

Overfunded retirement plans

   

215

   

102

Other long-term assets

   

147

   

71

Total assets

 

$

17,507

 

$

15,978

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

500

 

$

378

Accounts payable

   

488

   

429

Accrued compensation

   

344

   

352

Income taxes payable

   

133

   

77

Accrued expenses and other liabilities

   

395

   

366

Total current liabilities

   

1,860

   

1,602

Long-term debt

   

3,578

   

2,980

Underfunded retirement plans

   

92

   

97

Deferred tax liabilities

   

53

   

36

Other long-term liabilities

   

1,282

   

624

Total liabilities

   

6,865

   

5,339

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

   

1,770

   

1,597

Retained earnings

   

35,619

   

33,595

Treasury common stock at cost

           

Shares: March 31, 2018 - 759,098,020; March 31, 2017 - 743,085,976

   

(28,096)

   

(25,767)

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

   

(392)

   

(527)

Total stockholders' equity

   

10,642

   

10,639

Total liabilities and stockholders' equity

 

$

17,507

 

$

15,978

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

   

March 31,

   

2018

 

2017

Cash flows from operating activities

           

Net income

 

$

1,366

 

$

997

Adjustments to Net income:

           

Depreciation

   

137

   

139

Amortization of acquisition-related intangibles

   

80

   

80

Amortization of capitalized software

   

12

   

11

Stock compensation

   

70

   

68

Deferred taxes

   

(31)

   

9

Increase (decrease) from changes in:

           

Accounts receivable

   

(176)

   

(68)

Inventories

   

(97)

   

(53)

Prepaid expenses and other current assets

   

356

   

(71)

Accounts payable and accrued expenses

   

(51)

   

(78)

Accrued compensation

   

(372)

   

(356)

Income taxes payable

   

(131)

   

149

Changes in funded status of retirement plans

   

(15)

   

(14)

Other

   

(36)

   

(18)

Cash flows from operating activities

   

1,112

   

795

             

Cash flows from investing activities

           

Capital expenditures

   

(189)

   

(127)

Proceeds from asset sales

   

   

40

Purchases of short-term investments

   

(996)

   

(757)

Proceeds from short-term investments

   

1,455

   

1,120

Other

   

(4)

   

(9)

Cash flows from investing activities

   

266

   

267

             

Cash flows from financing activities

           

Repayment of debt

   

   

(250)

Dividends paid

   

(611)

   

(500)

Stock repurchases

   

(873)

   

(550)

Proceeds from common stock transactions

   

178

   

161

Other

   

(11)

   

(4)

Cash flows from financing activities

   

(1,317)

   

(1,143)

             

Net change in Cash and cash equivalents

   

61

   

(81)

Cash and cash equivalents at beginning of period

   

1,656

   

1,154

Cash and cash equivalents at end of period

 

$

1,717

 

$

1,073

 

 

Segment results

Amounts are in millions of dollars.

     

1Q18

   

1Q17

 

Change

Analog:

               

Revenue

 

$

2,566

 

$

2,256

 

14%

Operating profit

 

$

1,166

 

$

935

 

25%

Embedded Processing:

               

Revenue

 

$

926

 

$

803

 

15%

Operating profit

 

$

328

 

$

240

 

37%

Other:

               

Revenue

 

$

297

 

$

343

 

(13)%

Operating profit*

 

$

54

 

$

77

 

(30)%

 

* Includes Acquisition charges and Restructuring charges/other.

 

Compared with the year-ago quarter:

Analog: (includes Power, Signal Chain and High Volume)

  • Revenue increased due to Power and Signal Chain. High Volume was about even.
  • Operating profit increased due to higher revenue and associated gross profit.

Embedded Processing: (includes Connected Microcontrollers and Processors)

  • Revenue increased in both product lines, led by Processors.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

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

  • Revenue decreased by $46 million, and operating profit declined by $23 million.

Non-GAAP financial information

This release includes references to free cash flow and ratios based on that measure. These are financial measures that were not prepared in accordance with 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.

Amounts are in millions of dollars.    

   

For 12 Months Ended

   
   

March 31,

   
   

2018

 

2017

 

Change

Cash flow from operations (GAAP)

 

$

5,680

 

$

4,756

 

19%

Capital expenditures

   

(757)

   

(534)

   

Free cash flow (non-GAAP)

 

$

4,923

 

$

4,222

 

17%

                 

Revenue

 

$

15,348

 

$

13,764

   
                 

Cash flow from operations as a percent of revenue (GAAP)

   

37.0%

   

34.6%

   

Free cash flow as a percent of revenue (non-GAAP)

   

32.1%

   

30.7%

   

 

This release also includes references to an annual operating tax rate, a non-GAAP term we use to describe the estimated annual effective tax rate, a GAAP measure that by definition does not include discrete tax items. We believe the term annual operating tax rate more clearly communicates that discrete tax items are excluded from such rate. The term also helps differentiate from the effective tax rate, which includes discrete tax items. No adjustments are made to the estimated annual effective tax rate when using the term annual operating tax rate.

Notice regarding forward-looking statements

This release 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:

  • Market demand for semiconductors, particularly in our end markets;
  • Our ability to compete in products and prices in an intensely competitive industry;
  • Customer demand that differs from forecasts and the financial impact of inadequate or excess company inventory that results from demand that differs from projections;
  • Economic, social and political conditions in the countries in which we, our customers or our suppliers operate, including security risks; global trade policies; political and social instability; health conditions; possible disruptions in transportation, communications and information technology networks; and fluctuations in foreign currency exchange rates;
  • Evolving cybersecurity threats to our information technology systems or those of our customers or suppliers;
  • Natural events such as severe weather, geological events or health epidemics in the locations in which we, our customers or our suppliers operate;
  • Our ability to develop, manufacture and market innovative products in a rapidly changing technological environment;
  • Timely implementation of new manufacturing technologies and installation of manufacturing equipment, and the ability to obtain needed third-party foundry and assembly/test subcontract services;
  • Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;
  • 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 manufacture or ship our products or operate our business, or subject us to fines, penalties or other legal liability;
  • Product liability or warranty claims, claims based on epidemic or delivery failure, or other claims relating to our products, manufacturing, services, design or communications, or recalls by our customers for a product containing one of our parts;
  • Changes in tax law and accounting standards that can 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;
  • A loss suffered by one of our customers or distributors with respect to TI-consigned inventory;
  • Financial difficulties of our distributors or their promotion of competing product lines to our detriment, or the loss of a significant number of distributors;
  • Losses or curtailments of purchases from key customers or the timing and amount of distributor and other 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 despite changes in the 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 that affects our ability to fund our daily operations, invest in the business, make strategic acquisitions, or make principal and interest payments on our debt;
  • Increases in health care and pension benefit costs;
  • Our ability to recruit and retain skilled engineering, management and technical personnel;
  • Our ability to successfully integrate and realize opportunities for growth from acquisitions, or our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings; and
  • Impairments of our non-financial assets.

For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of TI's most recent Form 10-K. The forward-looking statements included in this release are made only as of the date of this release, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

About Texas Instruments

Texas Instruments Incorporated (TI) is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors. By employing the world's brightest minds, TI creates innovations that shape the future of technology. TI is helping approximately 100,000 customers transform the future, today. Learn more at www.ti.com.

TI trademarks:
            DLP
Other trademarks are the property of their respective owners.

TXN-G

 

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