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October 26, 2016

TI reports 3Q16 financial results and shareholder returns, including 32% dividend increase

DALLAS, Oct. 26, 2016 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported third-quarter revenue of $3.68 billion, net income of $968 million and earnings per share of 94 cents.

TI also increased its quarterly dividend by 32 percent to 50 cents per share, or $2.00 annualized. The increase reflects TI's continued strength in free cash flow generation and its commitment to return excess cash to shareholders. The quarterly dividend was declared and will be payable November 21, 2016, to shareholders of record on November 7, 2016

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

  • "Revenue and earnings per share for the quarter were slightly above our expected range. Compared with a year ago, demand for our products continued to be strong in the automotive market and improved in the industrial market. Demand in the personal electronics market was about even with a year ago.
  • "In our core businesses, Embedded Processing revenue grew 10 percent and Analog revenue grew 6 percent from the same quarter a year ago. Operating margin increased in both businesses.
  • "Gross margin of 62.0 percent reflected 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 of $4.5 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 8 percent from a year ago to $3.9 billion, and represents 29.5 percent of revenue, up from 27.5 percent a year ago.
  • "We have returned $3.8 billion to shareholders in the past 12 months through stock repurchases and dividends, consistent with our strategy to return to shareholders all of our free cash flow plus proceeds from exercises of equity compensation minus net debt retirement.
  • "Our balance sheet remains strong with $3.1 billion of cash and short-term investments at the end of the quarter, about 80 percent of which was owned by the company's U.S. entities. Inventory ended the quarter at 117 days.
  • "TI's fourth-quarter outlook is for revenue in the range of $3.17 billion to $3.43 billion, and earnings per share between 76 and 86 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. 

   

3Q16

 

3Q15

 

Change

Revenue

 

$   3,675

 

$   3,429

 

7%

Operating profit

 

$   1,395

 

$   1,164

 

20%

Net income

 

$      968

 

$      798

 

21%

Earnings per share

 

$     0.94

 

$     0.76

 

24%

 

Cash generation

Amounts are in millions of dollars.

       

Trailing 12 Months

 
   

3Q16

 

3Q16

 

3Q15

 

Change

 

Cash flow from operations

 

$   1,413

 

$   4,459

 

$   4,110

 

8%

 

Capital expenditures

 

$      139

 

$      585

 

$      512

 

14%

 

Free cash flow

 

$   1,274

 

$   3,874

 

$   3,598

 

8%

 

Free cash flow % of revenue

     

29.5%

 

27.5%

     

 

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

   

3Q16

 

3Q16

 

3Q15

 

Change

Dividends paid

 

$    382

 

$   1,533

 

$   1,414

 

8%

Stock repurchases

 

$    500

 

$   2,284

 

$   2,812

 

-19%

Total cash returned

 

$    882

 

$   3,817

 

$   4,226

 

-10%

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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

 
   

For Three Months Ended

 
   

September 30,

 
   

2016

 

2015

 

Revenue

 

$

3,675

 

$

3,429

 

Cost of revenue (COR)

   

1,395

   

1,432

 

Gross profit

   

2,280

   

1,997

 

Research and development (R&D)

   

356

   

316

 

Selling, general and administrative (SG&A)

   

448

   

434

 

Acquisition charges

   

80

   

83

 

Restructuring charges/other

   

1

   

 

Operating profit

   

1,395

   

1,164

 

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

   

4

   

6

 

Interest and debt expense

   

18

   

22

 

Income before income taxes

   

1,381

   

1,148

 

Provision for income taxes

   

413

   

350

 

Net income

 

$

968

 

$

798

 
               

Diluted earnings per common share

 

$

.94

 

$

.76

 
               

Average diluted shares outstanding (millions)

   

1,017

   

1,035

 
               

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

 

$

968

 

$

798

 

Income allocated to RSUs

   

(11)

   

(11)

 

Income allocated to common stock for diluted EPS

 

$

957

 

$

787

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

September 30,

   

2016

 

2015

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

1,369

 

$

1,133

Short-term investments

   

1,768

   

1,602

Accounts receivable, net of allowances of ($14) and ($16)

   

1,447

   

1,481

Raw materials

   

104

   

108

Work in process

   

949

   

913

Finished goods

   

755

   

750

Inventories

   

1,808

   

1,771

Prepaid expenses and other current assets

   

789

   

945

Total current assets

   

7,181

   

6,932

Property, plant and equipment at cost

   

4,982

   

5,742

Accumulated depreciation

   

(2,437)

   

(3,113)

Property, plant and equipment, net

   

2,545

   

2,629

Long-term investments

   

233

   

216

Goodwill, net

   

4,362

   

4,362

Acquisition-related intangibles, net

   

1,344

   

1,662

Deferred income taxes

   

355

   

247

Capitalized software licenses, net

   

50

   

54

Overfunded retirement plans

   

64

   

76

Other assets

   

82

   

81

Total assets

 

$

16,216

 

$

16,259

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

634

 

$

1,000

Accounts payable

   

428

   

367

Accrued compensation

   

647

   

615

Income taxes payable

   

68

   

84

Accrued expenses and other liabilities

   

393

   

431

Total current liabilities

   

2,170

   

2,497

Long-term debt

   

2,977

   

3,121

Underfunded retirement plans

   

201

   

247

Deferred income taxes

   

35

   

41

Deferred credits and other liabilities

   

547

   

383

Total liabilities

   

5,930

   

6,289

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

   

1,757

   

1,562

Retained earnings

   

32,432

   

30,731

Treasury common stock at cost

           

Shares: September 30, 2016 - 739,693,480; September 30, 2015 - 721,186,352

   

(25,102)

   

(23,551)

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

   

(542)

   

(513)

Total stockholders' equity

   

10,286

   

9,970

Total liabilities and stockholders' equity

 

$

16,216

 

$

16,259

 

Certain amounts in the prior period's balance sheet have been reclassified to conform to the current presentation.

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

   

September 30,

   

2016

 

2015

Cash flows from operating activities

           

Net income

 

$

968

 

$

798

Adjustments to Net income:

           

Depreciation

   

150

   

193

Amortization of acquisition-related intangibles

   

80

   

80

Amortization of capitalized software

   

7

   

12

Stock-based compensation

   

56

   

66

Deferred income taxes

   

(125)

   

(50)

Increase (decrease) from changes in:

           

Accounts receivable

   

(98)

   

(47)

Inventories

   

68

   

114

Prepaid expenses and other current assets

   

95

   

40

Accounts payable and accrued expenses

   

9

   

(48)

Accrued compensation

   

149

   

132

Income taxes payable

   

47

   

99

Changes in funded status of retirement plans

   

24

   

24

Other

   

(17)

   

(4)

Cash flows from operating activities

   

1,413

   

1,409

             

Cash flows from investing activities

           

Capital expenditures

   

(139)

   

(139)

Purchases of short-term investments

   

(978)

   

(459)

Proceeds from short-term investments

   

515

   

980

Other

   

(1)

   

7

Cash flows from investing activities

   

(603)

   

389

             

Cash flows from financing activities

           

Repayment of debt

   

   

(750)

Dividends paid

   

(382)

   

(348)

Stock repurchases

   

(500)

   

(790)

Proceeds from common stock transactions

   

159

   

35

Excess tax benefit from share-based payments

   

47

   

4

Cash flows from financing activities

   

(676)

   

(1,849)

             

Net change in Cash and cash equivalents

   

134

   

(51)

Cash and cash equivalents at beginning of period

   

1,235

   

1,184

Cash and cash equivalents at end of period

 

$

1,369

 

$

1,133

 

 

Segment results

Amounts are in millions of dollars.

     

3Q16

   

3Q15

 

Change

Analog:

               

Revenue

 

$

2,323

 

$

2,182

 

6%

Operating profit

 

$

949

 

$

812

 

17%

Embedded Processing:

               

Revenue

 

$

795

 

$

725

 

10%

Operating profit

 

$

220

 

$

174

 

26%

Other:

               

Revenue

 

$

557

 

$

522

 

7%

Operating profit*

 

$

226

 

$

178

 

27%

 

* 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 Performance Analog, Silicon Valley Analog and Power Management. High Volume Analog & Logic was about even.
  • Operating profit increased primarily due to higher revenue and lower manufacturing costs.

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.

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

  • Revenue increased primarily due to calculators and DLP products, partially offset by a decrease in royalties and custom ASIC products.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

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 shareholders, 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 measures is provided in the table below.

Amounts are in millions of dollars.

 

   

For 12 Months Ended

   
   

September 30,

   
   

2016

 

2015

 

Change

Cash flow from operations (GAAP)

 

$

4,459

 

$

4,110

 

8%

Capital expenditures

   

(585)

   

(512)

   

Free cash flow (non-GAAP)

 

$

3,874

 

$

3,598

 

8%

                 

Revenue

 

$

13,145

 

$

13,080

   
                 

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

   

33.9%

   

31.4%

   

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

   

29.5%

   

27.5%

   

 

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 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 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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