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January 23, 2018

TI reports 4Q17 and 2017 financial results and shareholder returns

DALLAS, Jan. 23, 2018 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported fourth-quarter revenue of $3.75 billion, net income of $344 million and earnings per share of 34 cents. Earnings per share include 75 cents in tax-related expenses not in the company's original guidance primarily due to the recently passed tax reform act.

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

  • "Revenue increased 10 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 11 percent and Embedded Processing grew 20 percent from the same quarter a year ago. Operating margin increased in both businesses.
  • "Gross margin of 65.1 percent for the quarter 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 $5.36 billion for the year again underscored the strength of our business model. Free cash flow for the year was up 14 percent from a year ago to $4.67 billion and represents 31.2 percent of revenue, up from 30.5 percent a year ago.
  • "We have returned $4.66 billion to owners in 2017 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, underscoring their sustainability.
  • "TI's first-quarter outlook is for revenue in the range of $3.49 billion to $3.79 billion, and earnings per share between $1.01 and $1.17, which includes an estimated $30 million discrete tax benefit.
  • "Notably, the recently passed tax reform act will reduce our annual operating tax rate from 31 percent in 2017 to an ongoing rate of 18 percent starting in 2019, comprehending the benefit of exports and having manufacturing, R&D and intellectual property in the United States. In 2018, our annual operating tax rate will be 23 percent, 5 percentage points higher, due to transitional expense associated with the reduced U.S. tax rate in 2018."

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 periods have been recast to conform to the current presentation.

Earnings summary

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

   

4Q17

 

4Q16

 

Change

Revenue

$

3,750

$

3,414

 

10%

Operating profit

$

1,563

$

1,332

 

17%

Net income

$

344

$

1,047

 

-67%

Earnings per share

$

0.34

$

1.02

 

-67%

 

Cash generation

Amounts are in millions of dollars.

         

Trailing 12 Months

     

4Q17

   

4Q17

   

4Q16

 

Change

Cash flow from operations

 

$

1,929

 

$

5,363

 

$

4,614

 

16%

Capital expenditures

 

$

231

 

$

695

 

$

531

 

31%

Free cash flow

 

$

1,698

 

$

4,668

 

$

4,083

 

14%

Free cash flow % of revenue

         

31.2%

   

30.5%

   

 

Cash return

Amounts are in millions of dollars.

         

Trailing 12 Months

     

4Q17

   

4Q17

   

4Q16

 

Change

Dividends paid

 

$

611

 

$

2,104

 

$

1,646

 

28%

Stock repurchases

 

$

706

 

$

2,556

 

$

2,132

 

20%

Total cash returned

 

$

1,317

 

$

4,660

 

$

3,778

 

23%

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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

 
   

For Three Months Ended

 

For Years Ended

   

December 31,

 

December 31,

   

2017

 

2016

 

2017

 

2016

Revenue

 

$

3,750

 

$

3,414

 

$

14,961

 

$

13,370

Cost of revenue (COR)

   

1,310

   

1,277

   

5,347

   

5,113

Gross profit

   

2,440

   

2,137

   

9,614

   

8,257

Research and development (R&D)

   

386

   

340

   

1,508

   

1,356

Selling, general and administrative (SG&A)

   

409

   

405

   

1,694

   

1,742

Acquisition charges

   

79

   

80

   

318

   

319

Restructuring charges/other

   

3

   

(20)

   

11

   

(15)

Operating profit

   

1,563

   

1,332

   

6,083

   

4,855

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

   

8

   

184

   

75

   

155

Interest and debt expense

   

21

   

19

   

78

   

80

Income before income taxes

   

1,550

   

1,497

   

6,080

   

4,930

Provision for income taxes

   

1,206

   

450

   

2,398

   

1,335

Net income

 

$

344

 

$

1,047

 

$

3,682

 

$

3,595

                         

Diluted earnings per common share

 

$

.34

 

$

1.02

 

$

3.61

 

$

3.48

                         

Average shares outstanding (millions):

Basic

   

985

   

998

   

991

   

1,003

Diluted

   

1,007

   

1,018

   

1,012

   

1,021

                         

Cash dividends declared per common share

 

$

.62

 

$

.50

 

$

2.12

 

$

1.64

                         

Certain amounts in the prior periods have been adjusted to reflect 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

 

Provision for income taxes is based on the following:

 

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

 

$

476

 

$

465

 

$

1,858

 

$

1,489

Discrete tax items

   

730

   

(15)

   

540

   

(154)

Provision for income taxes (effective taxes)

 

$

1,206

 

$

450

 

$

2,398

 

$

1,335

 

Annual operating tax rate

   

31%

   

31%

   

31%

   

30%

Effective tax rate

   

78%

   

30%

   

39%

   

27%

 

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

 

$

344

 

$

1,047

 

$

3,682

 

$

3,595

Income allocated to RSUs

   

(3)

   

(13)

   

(33)

   

(44)

Income allocated to common stock for diluted EPS

 

$

341

 

$

1,034

 

$

3,649

 

$

3,551

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

December 31,

   

2017

 

2016

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

1,656

 

$

1,154

Short-term investments

   

2,813

   

2,336

Accounts receivable, net of allowances of ($8) and ($17)

   

1,278

   

1,267

Raw materials

   

126

   

102

Work in process

   

1,089

   

954

Finished goods

   

742

   

734

Inventories

   

1,957

   

1,790

Prepaid expenses and other current assets

   

1,030

   

910

Total current assets

   

8,734

   

7,457

Property, plant and equipment at cost

   

4,789

   

4,923

Accumulated depreciation

   

(2,125)

   

(2,411)

Property, plant and equipment, net

   

2,664

   

2,512

Long-term investments

   

268

   

235

Goodwill

   

4,362

   

4,362

Acquisition-related intangibles

   

946

   

1,264

Deferred tax assets

   

264

   

374

Capitalized software licenses

   

110

   

52

Overfunded retirement plans

   

208

   

96

Other assets

   

86

   

79

Total assets

 

$

17,642

 

$

16,431

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

500

 

$

631

Accounts payable

   

466

   

396

Accrued compensation

   

722

   

710

Income taxes payable

   

128

   

83

Accrued expenses and other liabilities

   

442

   

444

Total current liabilities

   

2,258

   

2,264

Long-term debt

   

3,577

   

2,978

Underfunded retirement plans

   

89

   

129

Deferred tax liabilities

   

78

   

33

Deferred credits and other liabilities

   

1,303

   

554

Total liabilities

   

7,305

   

5,958

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

   

1,776

   

1,674

Retained earnings

   

34,662

   

33,107

Treasury common stock at cost

           

Shares: 2017 - 757,657,217; 2016 - 744,831,978

   

(27,458)

   

(25,523)

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

   

(384)

   

(526)

Total stockholders' equity

   

10,337

   

10,473

Total liabilities and stockholders' equity

 

$

17,642

 

$

16,431

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

 

For Years Ended

   

December 31,

 

December 31,

   

2017

 

2016

 

2017

 

2016

Cash flows from operating activities

                       

Net income

 

$

344

 

$

1,047

 

$

3,682

 

$

3,595

Adjustments to Net income:

                       

Depreciation

   

133

   

139

   

539

   

605

Amortization of acquisition-related intangibles

   

79

   

80

   

318

   

319

Amortization of capitalized software

   

12

   

8

   

47

   

31

Stock-based compensation

   

45

   

48

   

242

   

252

Gains on sales of assets

   

   

(40)

   

   

(40)

Deferred taxes

   

159

   

(42)

   

112

   

(202)

Increase (decrease) from changes in:

                       

Accounts receivable

   

299

   

166

   

(7)

   

(108)

Inventories

   

(49)

   

18

   

(167)

   

(99)

Prepaid expenses and other current assets

   

33

   

(211)

   

76

   

(81)

Accounts payable and accrued expenses

   

70

   

59

   

51

   

72

Accrued compensation

   

82

   

62

   

(3)

   

36

Income taxes payable

   

694

   

180

   

468

   

333

Changes in funded status of retirement plans

   

(15)

   

(129)

   

21

   

(73)

Other

   

43

   

2

   

(16)

   

(26)

Cash flows from operating activities

   

1,929

   

1,387

   

5,363

   

4,614

                         

Cash flows from investing activities

                       

Capital expenditures

   

(231)

   

(110)

   

(695)

   

(531)

Proceeds from asset sales

   

   

   

40

   

Purchases of short-term investments

   

(1,450)

   

(1,332)

   

(4,555)

   

(3,503)

Proceeds from short-term investments

   

790

   

765

   

4,095

   

3,390

Other

   

(7)

   

(8)

   

(12)

   

(6)

Cash flows from investing activities

   

(898)

   

(685)

   

(1,127)

   

(650)

                         

Cash flows from financing activities

                       

Proceeds from issuance of debt

   

494

   

   

1,099

   

499

Repayment of debt

   

   

   

(625)

   

(1,000)

Dividends paid

   

(611)

   

(499)

   

(2,104)

   

(1,646)

Stock repurchases

   

(706)

   

(475)

   

(2,556)

   

(2,132)

Proceeds from common stock transactions

   

162

   

57

   

483

   

472

Other

   

(10)

   

   

(31)

   

(3)

Cash flows from financing activities

   

(671)

   

(917)

   

(3,734)

   

(3,810)

                         

Net change in Cash and cash equivalents

   

360

   

(215)

   

502

   

154

Cash and cash equivalents at beginning of period

   

1,296

   

1,369

   

1,154

   

1,000

Cash and cash equivalents at end of period

 

$

1,656

 

$

1,154

 

$

1,656

 

$

1,154

 

 

Quarterly segment results

Amounts are in millions of dollars.

     

4Q17

   

4Q16

 

Change

Analog:

               

Revenue

 

$

2,535

 

$

2,290

 

11%

Operating profit

 

$

1,188

 

$

990

 

20%

Embedded Processing:

               

Revenue

 

$

896

 

$

744

 

20%

Operating profit

 

$

307

 

$

214

 

43%

Other:

               

Revenue

 

$

319

 

$

380

 

-16%

Operating profit*

 

$

68

 

$

128

 

-47%

 

* 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 declined.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing: (includes Connected Microcontrollers and Processors)

  • Revenue increased in both product lines.
  • Operating profit increased due to higher revenue and associated gross profit.

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

  • Revenue decreased $61 million, and operating profit declined $60 million.

 

Annual segment results

Amounts are in millions of dollars.

     

2017

   

2016

 

Change

Analog:

               

Revenue

 

$

9,900

 

$

8,536

 

16%

Operating profit

 

$

4,468

 

$

3,416

 

31%

Embedded Processing:

               

Revenue

 

$

3,498

 

$

3,023

 

16%

Operating profit

 

$

1,143

 

$

817

 

40%

Other:

               

Revenue

 

$

1,563

 

$

1,811

 

-14%

Operating profit*

 

$

472

 

$

622

 

-24%

 

* Includes Acquisition charges and Restructuring charges/other.

 

Compared with the prior year:

Analog: 

  • Revenue increased due to Power and Signal Chain. High Volume also grew.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing: 

  • Revenue increased due to growth in both product lines - Processors and Connected Microcontrollers.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

Other: 

  • Revenue declined $248 million primarily due to custom ASIC products and the move of royalties from revenue to OI&E, which began in the first quarter of 2017.
  • Operating profit decreased $150 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 Years Ended

   
   

December 31,

   
   

2017

 

2016

 

Change

Cash flow from operations (GAAP)

 

$

5,363

 

$

4,614

 

16%

Capital expenditures

   

(695)

   

(531)

   

Free cash flow (non-GAAP)

 

$

4,668

 

$

4,083

 

14%

                 

Revenue

 

$

14,961

 

$

13,370

   
                 

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

   

35.8%

   

34.5%

   

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

   

31.2%

   

30.5%

   

 

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 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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