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October 24, 2017

TI reports 3Q17 financial results and shareholder returns

DALLAS, Oct. 24, 2017 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported third-quarter revenue of $4.12 billion, net income of $1.29 billion and earnings per share of $1.26. Earnings per share include a 2-cent discrete tax benefit 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 12 percent from the same quarter a year ago. Demand for our products continued to be strong in the industrial and automotive markets.
  • "In our core businesses, Analog revenue grew 16 percent and Embedded Processing revenue grew 17 percent from the same quarter a year ago. Operating margin increased in both businesses.
  • "Gross margin of 64.5 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 $4.8 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was $4.2 billion and represents 29.0 percent of revenue.
  • "We have returned $4.3 billion to owners in the past 12 months through dividends and stock repurchases. In September, we announced we would increase our dividend by 24 percent and also increased our share repurchase authorizations by $6 billion, which together reflect our commitment to return all free cash flow to our owners.
  • "TI's fourth-quarter outlook is for revenue in the range of $3.57 billion to $3.87 billion, and earnings per share between $1.01 and $1.15, which includes an estimated $20 million discrete tax benefit."

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

Certain amounts in the prior period have been recast to conform to the current presentation.

Earnings summary

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

   

3Q17

 

3Q16

 

Change

Revenue

$

4,116

$

3,675

 

12%

Operating profit

$

1,788

$

1,408

 

27%

Net income

$

1,285

$

1,018

 

26%

Earnings per share

$

1.26

$

0.98

 

29%

 

Cash generation

Amounts are in millions of dollars.

         

Trailing 12 Months

     

3Q17

   

3Q17

   

3Q16

 

Change

Cash flow from operations

 

$

1,722

 

$

4,821

 

$

4,673

 

3%

Capital expenditures

 

$

186

 

$

574

 

$

585

 

-2%

Free cash flow

 

$

1,536

 

$

4,247

 

$

4,088

 

4%

Free cash flow % of revenue

         

29.0%

   

31.1%

   

 

Cash return

Amounts are in millions of dollars.

         

Trailing 12 Months

     

3Q17

   

3Q17

   

3Q16

 

Change

Dividends paid

 

$

495

 

$

1,992

 

$

1,533

 

30%

Stock repurchases

 

$

650

 

$

2,325

 

$

2,284

 

2%

Total cash returned

 

$

1,145

 

$

4,317

 

$

3,817

 

13%

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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

 
   

For Three Months Ended

   

September 30,

   

2017

 

2016

Revenue

 

$

4,116

 

$

3,675

Cost of revenue (COR)

   

1,460

   

1,391

Gross profit

   

2,656

   

2,284

Research and development (R&D)

   

375

   

353

Selling, general and administrative (SG&A)

   

412

   

442

Acquisition charges

   

80

   

80

Restructuring charges/other

   

1

   

1

Operating profit

   

1,788

   

1,408

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

   

20

   

(9)

Interest and debt expense

   

19

   

18

Income before income taxes

   

1,789

   

1,381

Provision for income taxes

   

504

   

363

Net income

 

$

1,285

 

$

1,018

             

Diluted earnings per common share

 

$

1.26

 

$

.98

             

Average shares outstanding (millions):

           

Basic

   

988

   

1,003

Diluted

   

1,008

   

1,023

             

Cash dividends declared per common share

 

$

.50

 

$

.38

             

Certain amounts in the prior period have been adjusted to reflect the following: (1) the fourth-quarter 2016 early adoption of ASU 2016-09 related to stock-based compensation, and (2) the first-quarter 2017 early adoption of ASU 2017-07 related to the reclassification of certain pension and other retiree benefit costs to OI&E.

 

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)

 

$

542

 

$

418

Discrete tax items

   

(38)

   

(55)

Provision for income taxes (effective taxes)

 

$

504

 

$

363

 

Annual operating tax rate

   

31%

   

30%

Effective tax rate

   

28%

   

26%

 

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

 

$

1,285

 

$

1,018

Income allocated to RSUs

   

(11)

   

(11)

Income allocated to common stock for diluted EPS

 

$

1,274

 

$

1,007

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

September 30,

   

2017

 

2016

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

1,296

 

$

1,369

Short-term investments

   

2,148

   

1,768

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

   

1,576

   

1,447

Raw materials

   

120

   

104

Work in process

   

1,103

   

949

Finished goods

   

685

   

755

Inventories

   

1,908

   

1,808

Prepaid expenses and other current assets

   

1,063

   

789

Total current assets

   

7,991

   

7,181

Property, plant and equipment at cost

   

4,668

   

4,982

Accumulated depreciation

   

(2,101)

   

(2,437)

Property, plant and equipment, net

   

2,567

   

2,545

Long-term investments

   

258

   

233

Goodwill, net

   

4,362

   

4,362

Acquisition-related intangibles, net

   

1,025

   

1,344

Deferred income taxes

   

414

   

355

Capitalized software licenses, net

   

111

   

50

Overfunded retirement plans

   

112

   

64

Other assets

   

89

   

82

Total assets

 

$

16,929

 

$

16,216

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

499

 

$

634

Accounts payable

   

430

   

428

Accrued compensation

   

635

   

647

Income taxes payable

   

74

   

68

Accrued expenses and other liabilities

   

417

   

393

Total current liabilities

   

2,055

   

2,170

Long-term debt

   

3,084

   

2,977

Underfunded retirement plans

   

108

   

201

Deferred income taxes

   

38

   

35

Deferred credits and other liabilities

   

656

   

547

Total liabilities

   

5,941

   

5,930

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

   

1,718

   

1,624

Retained earnings

   

34,935

   

32,565

Treasury common stock at cost

           

Shares: September 30, 2017 - 754,459,144; September 30, 2016 - 739,693,480

   

(26,901)

   

(25,102)

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

   

(505)

   

(542)

Total stockholders' equity

   

10,988

   

10,286

Total liabilities and stockholders' equity

 

$

16,929

 

$

16,216

 

Certain amounts in the prior period have been recast 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,

   

2017

 

2016

Cash flows from operating activities

           

Net income

 

$

1,285

 

$

1,018

Adjustments to Net income:

           

Depreciation

   

133

   

150

Amortization of acquisition-related intangibles

   

80

   

80

Amortization of capitalized software

   

12

   

7

Stock compensation

   

54

   

56

Deferred income taxes

   

(2)

   

(125)

Increase (decrease) from changes in:

           

Accounts receivable

   

(106)

   

(98)

Inventories

   

39

   

68

Prepaid expenses and other current assets

   

31

   

95

Accounts payable and accrued expenses

   

47

   

14

Accrued compensation

   

140

   

149

Income taxes payable

   

10

   

47

Changes in funded status of retirement plans

   

31

   

24

Other

   

(32)

   

(20)

Cash flows from operating activities

   

1,722

   

1,465

             

Cash flows from investing activities

           

Capital expenditures

   

(186)

   

(139)

Purchases of short-term investments

   

(1,218)

   

(978)

Proceeds from short-term investments

   

920

   

515

Other

   

(4)

   

(1)

Cash flows from investing activities

   

(488)

   

(603)

             

Cash flows from financing activities

           

Dividends paid

   

(495)

   

(382)

Stock repurchases

   

(650)

   

(500)

Proceeds from common stock transactions

   

76

   

154

Other

   

(9)

   

Cash flows from financing activities

   

(1,078)

   

(728)

             

Net change in Cash and cash equivalents

   

156

   

134

Cash and cash equivalents at beginning of period

   

1,140

   

1,235

Cash and cash equivalents at end of period

 

$

1,296

 

$

1,369

 

Certain amounts in the prior period have been recast to conform to the current presentation.

 

 

Segment results

Amounts are in millions of dollars.

     

3Q17

   

3Q16

 

Change

Analog:

               

Revenue

 

$

2,698

 

$

2,323

 

16%

Operating profit

 

$

1,268

 

$

957

 

32%

Embedded Processing:

               

Revenue

 

$

931

 

$

795

 

17%

Operating profit

 

$

325

 

$

224

 

45%

Other:

               

Revenue

 

$

487

 

$

557

 

-13%

Operating profit*

 

$

195

 

$

227

 

-14%

 

* 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 primarily due to higher revenue and associated gross profit.

Embedded Processing: (includes Connected Microcontrollers and Processors)

  • Revenue increased in Processors and Connected Microcontrollers.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

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

  • Revenue decreased by $70 million, and operating profit declined by $32 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 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,

   
   

2017

 

2016

 

Change

Cash flow from operations (GAAP)

 

$

4,821

 

$

4,673

 

3%

Capital expenditures

   

(574)

   

(585)

   

Free cash flow (non-GAAP)

 

$

4,247

 

$

4,088

 

4%

                 

Revenue

 

$

14,625

 

$

13,145

   
                 

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

   

33.0%

   

35.5%

   

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

   

29.0%

   

31.1%

   

 

This release also includes references to an annual operating tax rate, a non-GAAP term the company uses to describe the estimated annual effective tax rate, a GAAP measure that by definition does not include discrete tax items. The company believes the term annual operating tax rate is useful because it 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 TI's end markets;
  • TI's 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 TI inventory that results from demand that differs from projections;
  • 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, 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;
  • Natural events such as severe weather, geological events or health epidemics in the locations in which TI, our customers or our suppliers operate;
  • Breaches or disruptions of TI's information technology systems or those of our customers or suppliers;
  • Timely implementation of new manufacturing technologies and installation of manufacturing equipment, or 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 TI is or may become subject, or actions of enforcement authorities, that restrict TI's ability to manufacture or ship our products or operate our business, or subject TI 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, increases in tariff rates, and the ability to realize deferred tax assets;
  • A loss suffered by a customer or distributor of TI with respect to TI-consigned inventory;
  • Financial difficulties of distributors or their promotion of competing product lines to TI's 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;
  • TI's 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;
  • TI's ability to maintain and enforce a strong intellectual property portfolio and maintain freedom of operation; or TI's exposure to infringement claims;
  • Instability in the global credit and financial markets that affects TI's 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;
  • TI's ability to recruit and retain skilled engineering, management and technical personnel;
  • TI's 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 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 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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SOURCE Texas Instruments Incorporated

 

 

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