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October 21, 2015

TI reports 3Q15 financial results and shareholder returns

Conference call on TI website at 4:30 p.m. Central time today www.ti.com/ir

DALLAS, Oct. 21, 2015 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported third-quarter revenue of $3.43 billion, net income of $798 million and earnings per share of 76 cents.

 

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

  • "Revenue declined 2 percent from a year ago. While our overall demand remained weak, revenue was stronger than we expected.
  • "Our core businesses of Analog and Embedded Processing each grew year over year. Together, they comprised 85 percent of third-quarter revenue and have delivered nine consecutive quarters of year-over-year growth.
  • "Gross margin was 58.2 percent of revenue, reflecting the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter analog production.
  • "Our cash flow from operations once again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 4 percent from a year ago to $3.6 billion. This represents 28 percent of revenue, up from 27 percent a year ago, and is consistent with our targeted range of 20-30 percent of revenue.
  • "We have returned $4.2 billion to shareholders in the past 12 months through stock repurchases and dividends. In September, we announced a quarterly dividend increase of 4 cents per share, a 12 percent increase. This marked 12 consecutive years of dividend increases. We also announced a $7.5 billion increase to our share buyback authorization.
  • "Our strategy to return to shareholders 100 percent of free cash flow plus proceeds from exercises of equity compensation minus net debt retirement reflects our confidence in the long-term sustainability of our business model.
  • "Our balance sheet remains strong with $2.7 billion of cash and short-term investments at the end of the quarter, 82 percent of which was owned by the company's U.S. entities. Inventory ended the quarter at 111 days.
  • "TI's fourth-quarter outlook is for revenue in the range of $3.07 billion to $3.33 billion, and earnings per share between 64 and 74 cents. For 2015, TI's annual effective tax rate is expected to be about 30 percent, unchanged from previous guidance."

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

Earnings summary

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

   

3Q15

 

3Q14

Change

Revenue

 

$   3,429

 

$   3,501

-2%

Operating profit

 

$   1,164

 

$   1,175

-1%

Net income

 

$      798

 

$      826

-3%

Earnings per share

 

$     0.76

 

$     0.76

0%

 

Cash generation

Amounts are in millions of dollars.

       

Trailing 12 Months

   
   

3Q15

 

3Q15

 

3Q14

 

Change

Cash flow from operations

 

$   1,409

 

$   4,110

 

$   3,819

 

8%

Capital expenditures

 

$      139

 

$      512

 

$      367

 

40%

Free cash flow

 

$   1,270

 

$   3,598

 

$   3,452

 

4%

Free cash flow % of revenue

     

28%

 

27%

   

 

Capital expenditures for the past 12 months were 4 percent of revenue. The company's long-term expectation is about 4 percent.

Cash return

Amounts are in millions of dollars.

       

Trailing 12 Months

   
   

3Q15

 

3Q15

 

3Q14

 

Change

Dividends paid

 

$      348

 

$   1,414

 

$   1,293

 

9%

Stock repurchases

 

$      790

 

$   2,812

 

$   2,867

 

-2%

Total cash returned

 

$   1,138

 

$   4,226

 

$   4,160

 

2%

 

The company's targeted cash return is 100 percent of free cash flow plus proceeds from exercises of equity compensation minus net debt retirement.

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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

 
   

For Three Months Ended

 
   

September 30,

 
   

2015

 

2014

 

Revenue

 

$

3,429

 

$

3,501

 

Cost of revenue (COR)

   

1,432

   

1,457

 

Gross profit

   

1,997

   

2,044

 

Research and development (R&D)

   

316

   

332

 

Selling, general and administrative (SG&A)

   

434

   

463

 

Acquisition charges

   

83

   

83

 

Restructuring charges/other

   

   

(9)

 

Operating profit

   

1,164

   

1,175

 

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

   

6

   

3

 

Interest and debt expense

   

22

   

23

 

Income before income taxes

   

1,148

   

1,155

 

Provision for income taxes

   

350

   

329

 

Net income

 

$

798

 

$

826

 
               

Diluted earnings per common share

 

$

.76

 

$

.76

 
               

Average diluted shares outstanding (millions)

   

1,035

   

1,074

 
               

Cash dividends declared per common share

 

$

.34

 

$

.30

 
               

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

 

$

798

 

$

826

 

Income allocated to RSUs

   

(11)

   

(13)

 

Income allocated to common stock for diluted EPS

 

$

787

 

$

813

 

 

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

September 30,

   

2015

 

2014

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

1,133

 

$

1,306

Short-term investments

   

1,602

   

1,880

Accounts receivable, net of allowances of ($16) and ($15)

   

1,481

   

1,477

Raw materials

   

108

   

97

Work in process

   

913

   

905

Finished goods

   

750

   

749

Inventories

   

1,771

   

1,751

Deferred income taxes

   

357

   

378

Prepaid expenses and other current assets

   

945

   

964

Total current assets

   

7,289

   

7,756

Property, plant and equipment at cost

   

5,742

   

6,393

Accumulated depreciation

   

(3,113)

   

(3,463)

Property, plant and equipment, net

   

2,629

   

2,930

Long-term investments

   

216

   

219

Goodwill, net

   

4,362

   

4,362

Acquisition-related intangibles, net

   

1,662

   

1,982

Deferred income taxes

   

160

   

177

Capitalized software licenses, net

   

54

   

93

Overfunded retirement plans

   

76

   

135

Other assets

   

92

   

246

Total assets

 

$

16,540

 

$

17,900

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

1,000

 

$

1,002

Accounts payable

   

367

   

393

Accrued compensation

   

615

   

613

Income taxes payable

   

84

   

106

Deferred income taxes

   

3

   

2

Accrued expenses and other liabilities

   

431

   

527

Total current liabilities

   

2,500

   

2,643

Long-term debt

   

3,132

   

3,643

Underfunded retirement plans

   

247

   

222

Deferred income taxes

   

308

   

450

Deferred credits and other liabilities

   

383

   

471

Total liabilities

   

6,570

   

7,429

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

   

1,562

   

1,314

Retained earnings

   

30,731

   

29,189

Treasury common stock at cost

           

Shares: September 30, 2015 – 721,186,352; September 30, 2014

           

– 684,515,992

   

(23,551)

   

(21,305)

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

   

(513)

   

(468)

Total stockholders' equity

   

9,970

   

10,471

Total liabilities and stockholders' equity

 

$

16,540

 

$

17,900

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

   

September 30,

   

2015

 

2014

Cash flows from operating activities

           

Net income

 

$

798

 

$

826

Adjustments to Net income:

           

Depreciation

   

193

   

213

Amortization of acquisition-related intangibles

   

80

   

80

Amortization of capitalized software

   

12

   

15

Stock-based compensation

   

66

   

62

Gains on sales of assets

   

   

(5)

Deferred income taxes

   

(50)

   

(27)

Increase (decrease) from changes in:

           

Accounts receivable

   

(47)

   

42

Inventories

   

114

   

(7)

Prepaid expenses and other current assets

   

40

   

96

Accounts payable and accrued expenses

   

(48)

   

(48)

Accrued compensation

   

132

   

127

Income taxes payable

   

99

   

(42)

Changes in funded status of retirement plans

   

24

   

32

Other

   

(4)

   

19

Cash flows from operating activities

   

1,409

   

1,383

             

Cash flows from investing activities

           

Capital expenditures

   

(139)

   

(103)

Proceeds from asset sales

   

   

6

Purchases of short-term investments

   

(459)

   

(704)

Proceeds from short-term investments

   

980

   

412

Other

   

7

   

6

Cash flows from investing activities

   

389

   

(383)

             

Cash flows from financing activities

           

Repayment of debt

   

(750)

   

Dividends paid

   

(348)

   

(319)

Stock repurchases

   

(790)

   

(670)

Proceeds from common stock transactions

   

35

   

68

Excess tax benefit from share-based payments

   

4

   

11

Cash flows from financing activities

   

(1,849)

   

(910)

             

Net change in Cash and cash equivalents

   

(51)

   

90

Cash and cash equivalents at beginning of period

   

1,184

   

1,216

Cash and cash equivalents at end of period

 

$

1,133

 

$

1,306

 

 

3Q15 segment results

Amounts are in millions of dollars.

   

3Q15

 

3Q14

 

Change

Analog:

           

Revenue

 

$   2,182

 

$   2,149

 

2%

Operating profit

 

$      812

 

$      802

 

1%

Embedded Processing:

           

Revenue

 

$      725

 

$      711

 

2%

Operating profit

 

$      174

 

$      114

 

53%

Other:

           

Revenue

 

$      522

 

$      641

 

-19%

Operating profit*

 

$      178

 

$      259

 

-31%

 

* Includes Acquisition charges and Restructuring charges/other.

Compared with the year-ago quarter:

Analog:  (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog) 

  • Revenue increased due to High Volume Analog & Logic. Silicon Valley Analog also grew, Power Management was about even and High Performance Analog declined.
  • Operating profit increased.

Embedded Processing:  (includes Processors, Microcontrollers and Connectivity)

  • Revenue increased due to Microcontrollers and Connectivity. Processors declined.
  • Operating profit increased due to lower operating expenses as well as higher gross profit.

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

  • Revenue declined primarily due to custom ASIC products and DLP products.
  • Operating profit decreased due to lower revenue and associated gross profit.

Non-GAAP financial information 

Free cash flow and associated ratios
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).

The company believes that free cash flow and the associated ratios provide insight into its liquidity, its cash-generating capability and the amount of cash potentially available to return to investors, as well as insight into its financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures.

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

Amounts are in millions of dollars.         

 

   

For 12 Months Ended

   
   

September 30,

   
   

2015

 

2014

 

Change

Cash flow from operations (GAAP)

 

$

4,110

 

$

3,819

 

8%

Capital expenditures

   

(512)

   

(367)

   

Free cash flow (non-GAAP)

 

$

3,598

 

$

3,452

 

4%

                 

Revenue

 

$

13,080

 

$

12,804

   
                 

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

   

31%

   

30%

   

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

   

28%

   

27%

   

 

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 its management:

  • Market demand for semiconductors, particularly in markets such as personal electronics and communications equipment;
  • TI's ability to maintain or improve profit margins, including its ability to utilize its manufacturing facilities at sufficient levels to cover its fixed operating costs, in an intensely competitive and cyclical industry;
  • TI's ability to develop, manufacture and market innovative products in a rapidly changing technological environment;
  • TI's ability to compete in products and prices in an intensely competitive industry;
  • TI's ability to maintain and enforce a strong intellectual property portfolio and obtain needed licenses from third parties;
  • Expiration of license agreements between TI and its patent licensees, and market conditions reducing royalty payments to TI;
  • Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security risks, health conditions, possible disruptions in transportation, communications and information technology networks and fluctuations in foreign currency exchange rates;
  • Natural events such as health epidemics, severe weather and earthquakes in the locations in which TI, its customers or its suppliers operate;
  • Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;
  • Changes in the tax rate applicable to TI as the result of changes in tax law, the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets;
  • Compliance with or changes in the complex laws, rules and regulations to which TI is or may become subject, or actions of enforcement authorities, that restrict our ability to manufacture our products or operate our business, or subject us to fines, penalties, or other legal liability;
  • Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments;
  • Financial difficulties of our distributors or their promotion of competing product lines to TI's detriment;
  • A loss suffered by a customer or distributor of TI with respect to TI-consigned inventory;
  • Customer demand that differs from our forecasts;
  • The financial impact of inadequate or excess TI inventory that results from demand that differs from projections;
  • Impairments of our non-financial assets;
  • Product liability or warranty claims, claims based on epidemic or delivery failure, recalls by TI customers for a product containing a TI part or other legal proceedings;
  • TI's ability to recruit and retain skilled personnel;
  • 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;
  • TI's obligation to make principal and interest payments on its debt;
  • TI's ability to successfully integrate and realize opportunities for growth from acquisitions, and our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings; and
  • Breaches of our information technology systems or those of our customers or suppliers.

For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of TI's Form 10-K for the year ended December 31, 2014. The forward-looking statements included in this release are made only as of the date of this release. TI undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or risks. 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.

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 more than 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-F

 

 

SOURCE Texas Instruments Incorporated