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April 27, 2016

TI reports 1Q16 financial results and shareholder returns

DALLAS, April 27, 2016 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported first-quarter revenue of $3.01 billion, net income of $668 million and earnings per share of 65 cents.

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

  • "Revenue for the quarter was in the upper half of our expected range. Compared with a year ago, notable market activity for our products included continuing strength in automotive, as well as improvement in industrial and communications equipment. Revenue was down 5 percent due to weakness within the personal electronics market, which declined as expected.
  • "Our core businesses of Analog and Embedded Processing comprised 87 percent of first-quarter revenue. From a year ago, Analog revenue declined 8 percent while Embedded Processing revenue grew 8 percent. Operating margin increased in both businesses.
  • "Gross margin of 60.6 percent was a new record, 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 1 percent from a year ago to $3.7 billion. This represents 28.4 percent of revenue, up from 27.3 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.
  • "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 $2.8 billion of cash and short-term investments at the end of the quarter, 80 percent of which was owned by the company's U.S. entities. Inventory ended the quarter at 137 days.
  • "TI's second-quarter outlook is for revenue in the range of $3.07 billion to $3.33 billion, and earnings per share between 67 and 77 cents. For 2016, 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. 

   

 

1Q16

 

1Q15

Change

Revenue

 

$   3,008

$   3,150

-5%

Operating profit

 

$      968

$      958

1%

Net income

 

$      668

$      656

2%

Earnings per share

 

$     0.65

$     0.61

7%

 

Cash generation

Amounts are in millions of dollars.

     

Trailing 12 Months

   

1Q16

1Q16

1Q15

Change

Cash flow from operations

 

$   547

$   4,206

$   4,039

4%

Capital expenditures

 

$   124

$      552

$      431

28%

Free cash flow

 

$   423

$   3,654

$   3,608

1%

Free cash flow % of revenue

   

28.4%

27.3%

 

 

Capital expenditures for the past 12 months were 4 percent of revenue, consistent with TI's long-term expectations.

Cash return

Amounts are in millions of dollars.

     

Trailing 12 Months

   

1Q16

1Q16

1Q15

Change

Dividends paid

 

$     383

$   1,471

$   1,354

9%

Stock repurchases

 

$     630

$   2,701

$   2,781

-3%

Total cash returned

 

$  1,013

$   4,172

$   4,135

1%

 

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

 
   

March 31,

 
   

2016

 

2015

 

Revenue

 

$

3,008

 

$

3,150

 

Cost of revenue (COR)

   

1,184

   

1,334

 

Gross profit

   

1,824

   

1,816

 

Research and development (R&D)

   

326

   

338

 

Selling, general and administrative (SG&A)

   

448

   

439

 

Acquisition charges

   

80

   

83

 

Restructuring charges/other

   

2

   

(2)

 

Operating profit

   

968

   

958

 

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

   

4

   

4

 

Interest and debt expense

   

22

   

22

 

Income before income taxes

   

950

   

940

 

Provision for income taxes

   

282

   

284

 

Net income

 

$

668

 

$

656

 
               

Diluted earnings per common share

 

$

.65

 

$

.61

 
               

Average diluted shares outstanding (millions)

   

1,018

   

1,061

 
               

Cash dividends declared per common share

 

$

.38

 

$

.34

 
               

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

 

$

668

 

$

656

 

Income allocated to RSUs

   

(9)

   

(9)

 

Income allocated to common stock for diluted EPS

 

$

659

 

$

647

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

March 31,

   

2016

 

2015

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

1,281

 

$

1,242

Short-term investments

   

1,519

   

2,062

Accounts receivable, net of allowances of ($11) and ($12)

   

1,269

   

1,394

Raw materials

   

105

   

107

Work in process

   

888

   

906

Finished goods

   

812

   

831

Inventories

   

1,805

   

1,844

Prepaid expenses and other current assets

   

785

   

810

Total current assets

   

6,659

   

7,352

Property, plant and equipment at cost

   

5,290

   

6,177

Accumulated depreciation

   

(2,736)

   

(3,419)

Property, plant and equipment, net

   

2,554

   

2,758

Long-term investments

   

220

   

232

Goodwill, net

   

4,362

   

4,362

Acquisition-related intangibles, net

   

1,503

   

1,822

Deferred income taxes

   

175

   

170

Capitalized software licenses, net

   

53

   

73

Overfunded retirement plans

   

84

   

128

Other assets

   

76

   

95

Total assets

 

$

15,686

 

$

16,992

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

1,249

 

$

1,000

Accounts payable

   

387

   

432

Accrued compensation

   

340

   

349

Income taxes payable

   

67

   

75

Accrued expenses and other liabilities

   

377

   

426

Total current liabilities

   

2,420

   

2,282

Long-term debt

   

2,869

   

3,628

Underfunded retirement plans

   

195

   

253

Deferred income taxes

   

38

   

63

Deferred credits and other liabilities

   

382

   

397

Total liabilities

   

5,904

   

6,623

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

   

1,558

   

1,410

Retained earnings

   

31,457

   

29,948

Treasury common stock at cost

           

Shares: March 31, 2016 - 734,244,179; March 31, 2015 - 696,401,920

   

(24,443)

   

(22,199)

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

   

(531)

   

(531)

Total stockholders' equity

   

9,782

   

10,369

Total liabilities and stockholders' equity

 

$

15,686

 

$

16,992

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

   

March 31,

   

2016

 

2015

Cash flows from operating activities

           

Net income

 

$

668

 

$

656

Adjustments to Net income:

           

Depreciation

   

161

   

203

Amortization of acquisition-related intangibles

   

80

   

80

Amortization of capitalized software

   

8

   

13

Stock-based compensation

   

72

   

78

Gains on sales of assets

   

   

(1)

Deferred income taxes

   

24

   

1

Increase (decrease) from changes in:

           

Accounts receivable

   

(100)

   

(154)

Inventories

   

(114)

   

(60)

Prepaid expenses and other current assets

   

43

   

54

Accounts payable and accrued expenses

   

(104)

   

(108)

Accrued compensation

   

(322)

   

(294)

Income taxes payable

   

131

   

147

Changes in funded status of retirement plans

   

18

   

19

Other

   

(18)

   

(25)

Cash flows from operating activities

   

547

   

609

             

Cash flows from investing activities

           

Capital expenditures

   

(124)

   

(123)

Proceeds from asset sales

   

   

1

Purchases of short-term investments

   

(200)

   

(335)

Proceeds from short-term investments

   

900

   

615

Other

   

(3)

   

Cash flows from investing activities

   

573

   

158

             

Cash flows from financing activities

           

Dividends paid

   

(383)

   

(356)

Stock repurchases

   

(630)

   

(670)

Proceeds from common stock transactions

   

131

   

246

Excess tax benefit from share-based payments

   

43

   

56

Cash flows from financing activities

   

(839)

   

(724)

             

Net change in Cash and cash equivalents

   

281

   

43

Cash and cash equivalents at beginning of period

   

1,000

   

1,199

Cash and cash equivalents at end of period

 

$

1,281

 

$

1,242

 

1Q16 segment results

Amounts are in millions of dollars.

   

 

1Q16

 

 

1Q15

 

Change

Analog:

           

Revenue

 

$   1,879

 

$   2,035

 

-8%

Operating profit

 

$      679

 

$      721

 

-6%

Embedded Processing:

           

Revenue

 

$      729

 

$      672

 

8%

Operating profit

 

$      182

 

$      123

 

48%

Other:

           

Revenue

 

$      400

 

$      443

 

-10%

Operating profit*

 

$      107

 

$      114

 

-6%

 

* 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 decreased primarily due to High Volume Analog & Logic. Power Management and High Performance Analog also declined, while Silicon Valley Analog grew.
  • Operating profit decreased primarily due to lower revenue, which was partially offset by lower manufacturing costs and a higher percentage of more profitable products. 

Embedded Processing: (includes Microcontrollers, Processors and Connectivity)

  • Revenue increased in all three product lines, led by Processors.
  • Operating profit increased primarily due to higher revenue and associated gross profit, as well as lower operating expenses.

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

  • Revenue declined primarily due to custom ASIC products.
  • Operating profit decreased by $7 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).

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

   
   

March 31,

   
   

2016

 

2015

 

Change

Cash flow from operations (GAAP)

 

$

4,206

 

$

4,039

 

4%

Capital expenditures

   

(552)

   

(431)

   

Free cash flow (non-GAAP)

 

$

3,654

 

$

3,608

 

1%

                 

Revenue

 

$

12,858

 

$

13,212

   
                 

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

   

32.7%

   

30.6%

   

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

   

28.4%

   

27.3%

   

 

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 TI's end markets;
  • TI's ability to compete in products and prices in an intensely competitive industry;
  • Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments;
  • Customer demand that differs from forecasts and the financial impact of inadequate or excess TI inventory that results from demand that differs from projections;
  • 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;
  • 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 severe weather, geological events or health epidemics in the locations in which TI, its customers or its suppliers operate;
  • Breaches of TI's information technology systems or those of its customers or suppliers;
  • Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;
  • 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 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;
  • 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 TI's ability to manufacture its products or operate its 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 TI products, manufacturing, services, design or communications, or recalls by TI customers for a product containing a TI part;
  • 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, adverse resolution of tax audits and the ability to realize deferred tax assets;
  • Financial difficulties of 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;
  • Instability in the global credit and financial markets that affects TI's ability to fund its daily operations, invest in the business, make strategic acquisitions, or make principal and interest payments on its debt;
  • Increases in health care and pension benefit costs;
  • TI's ability to recruit and retain skilled personnel;
  • TI's ability to successfully integrate and realize opportunities for growth from acquisitions, and its ability to realize its expectations regarding the amount and timing of restructuring charges and associated cost savings; and
  • Impairments of TI's non-financial assets.

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, 2015. 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 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-G

 

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SOURCE Texas Instruments Incorporated

 

 

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