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January 23, 2019

TI reports 4Q18 and 2018 financial results and shareholder returns

Conference call on TI website at 3:30 p.m. Central time today
www.ti.com/ir

 

DALLAS, Jan. 23, 2019 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported fourth-quarter revenue of $3.72 billion, net income of $1.24 billion and earnings per share of $1.27. Earnings per share include a 1 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 decreased 1 percent from the same quarter a year ago as demand for our products continued to slow across most markets.
  • "In our core businesses, Analog revenue grew 4 percent and Embedded Processing declined 12 percent from the same quarter a year ago.
  • "Our cash flow from operations of $7.2 billion for the year again underscored the strength of our business model. Free cash flow for the year was $6.1 billion and represents 38.4 percent of revenue. This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter Analog production.
  • "We have returned $7.7 billion to owners in 2018 through stock repurchases and dividends. Our strategy is to return all our free cash flow to owners. Over the last 12 months, our dividends represented 42 percent of free cash flow, underscoring their sustainability.
  • "TI's first-quarter outlook is for revenue in the range of $3.34 billion to $3.62 billion, and earnings per share between $1.03 and $1.21, which includes an estimated $20 million discrete tax benefit. For 2019, TI's annual operating tax rate is expected to be about 16 percent."

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

Earnings summary

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

   

4Q18

 

4Q17

 

Change

Revenue

$

3,717

$

3,750

 

(1)%

Operating profit

$

1,516

$

1,563

 

(3)%

Net income

$

1,239

$

344

 

260%

Earnings per share

$

1.27

$

0.34

 

274%

 

Cash generation

Amounts are in millions of dollars.

         

Trailing 12 Months

     

4Q18

   

4Q18

   

4Q17

 

Change

Cash flow from operations

 

$

2,145

 

$

7,189

 

$

5,363

 

34%

Capital expenditures

 

$

323

 

$

1,131

 

$

695

 

63%

Free cash flow

 

$

1,822

 

$

6,058

 

$

4,668

 

30%

Free cash flow % of revenue

         

38.4%

   

31.2%

   

 

Cash return

Amounts are in millions of dollars.

         

Trailing 12 Months

     

4Q18

   

4Q18

   

4Q17

 

Change

Dividends paid

 

$

736

 

$

2,555

 

$

2,104

 

21%

Stock repurchases

 

$

2,009

 

$

5,100

 

$

2,556

 

100%

Total cash returned

 

$

2,745

 

$

7,655

 

$

4,660

 

64%

 

 

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,

   

2018

 

2017

 

2018

 

2017

Revenue

 

$

3,717

 

$

3,750

 

$

15,784

 

$

14,961

Cost of revenue (COR)

   

1,310

   

1,310

   

5,507

   

5,347

Gross profit

   

2,407

   

2,440

   

10,277

   

9,614

Research and development (R&D)

   

400

   

386

   

1,559

   

1,508

Selling, general and administrative (SG&A)

   

414

   

409

   

1,684

   

1,694

Acquisition charges

   

79

   

79

   

318

   

318

Restructuring charges/other

   

(2)

   

3

   

3

   

11

Operating profit

   

1,516

   

1,563

   

6,713

   

6,083

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

   

23

   

8

   

98

   

75

Interest and debt expense

   

36

   

21

   

125

   

78

Income before income taxes

   

1,503

   

1,550

   

6,686

   

6,080

Provision for income taxes

   

264

   

1,206

   

1,106

   

2,398

Net income

 

$

1,239

 

$

344

 

$

5,580

 

$

3,682

                         

Diluted earnings per common share

 

$

1.27

 

$

.34

 

$

5.59

 

$

3.61

                         

Average shares outstanding (millions):

Basic

   

953

   

985

   

970

   

991

Diluted

   

970

   

1,007

   

990

   

1,012

                         

Cash dividends declared per common share

 

$

.77

 

$

.62

 

$

2.63

 

$

2.12

                         
 

Supplemental Information

 

Provision for income taxes is based on the following:

 

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

 

$

277

 

$

476

 

$

1,304

 

$

1,858

Discrete tax items

   

(13)

   

730

   

(198)

   

540

Provision for income taxes (effective taxes)

 

$

264

 

$

1,206

 

$

1,106

 

$

2,398

 

Effective tax rate

   

18%

   

78%

   

17%

   

39%

 

Our annual operating tax rate, which does not include discrete tax items, was 20 percent compared with 31 percent in the prior year.

 

A portion of net income is allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents. Diluted EPS is calculated using the following:

 

Net income

 

$

1,239

 

$

344

 

$

5,580

 

$

3,682

Income allocated to RSUs

   

(8)

   

(3)

   

(42)

   

(33)

Income allocated to common stock for diluted EPS

 

$

1,231

 

$

341

 

$

5,538

 

$

3,649

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

December 31,

   

2018

 

2017

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

2,438

 

$

1,656

Short-term investments

   

1,795

   

2,813

Accounts receivable, net of allowances of ($19) and ($8)

   

1,207

   

1,278

Raw materials

   

181

   

126

Work in process

   

1,070

   

1,089

Finished goods

   

966

   

742

Inventories

   

2,217

   

1,957

Prepaid expenses and other current assets

   

440

   

1,030

Total current assets

   

8,097

   

8,734

Property, plant and equipment at cost

   

5,425

   

4,789

Accumulated depreciation

   

(2,242)

   

(2,125)

Property, plant and equipment

   

3,183

   

2,664

Long-term investments

   

251

   

268

Goodwill

   

4,362

   

4,362

Acquisition-related intangibles

   

628

   

946

Deferred tax assets

   

295

   

264

Capitalized software licenses

   

89

   

110

Overfunded retirement plans

   

92

   

208

Other long-term assets

   

140

   

86

Total assets

 

$

17,137

 

$

17,642

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

749

 

$

500

Accounts payable

   

478

   

466

Accrued compensation

   

724

   

722

Income taxes payable

   

103

   

128

Accrued expenses and other liabilities

   

420

   

442

Total current liabilities

   

2,474

   

2,258

Long-term debt

   

4,319

   

3,577

Underfunded retirement plans

   

118

   

89

Deferred tax liabilities

   

42

   

78

Other long-term liabilities

   

1,190

   

1,303

Total liabilities

   

8,143

   

7,305

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

   

1,950

   

1,776

Retained earnings

   

37,906

   

34,662

Treasury common stock at cost

           

Shares: 2018 – 795,665,646; 2017 – 757,657,217

   

(32,130)

   

(27,458)

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

   

(473)

   

(384)

Total stockholders' equity

   

8,994

   

10,337

Total liabilities and stockholders' equity

 

$

17,137

 

$

17,642

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

 

For Years Ended

   

December 31,

 

December 31,

   

2018

 

2017

 

2018

 

2017

Cash flows from operating activities

                       

Net income

 

$

1,239

 

$

344

 

$

5,580

 

$

3,682

Adjustments to net income:

                       

Depreciation

   

158

   

133

   

590

   

539

Amortization of acquisition-related intangibles

   

79

   

79

   

318

   

318

Amortization of capitalized software

   

12

   

12

   

46

   

47

Stock compensation

   

42

   

45

   

232

   

242

Gains on sales of assets

   

(3)

   

   

(3)

   

Deferred taxes

   

(23)

   

159

   

(105)

   

112

Increase (decrease) from changes in:

                       

Accounts receivable

   

378

   

299

   

71

   

(7)

Inventories

   

(101)

   

(49)

   

(282)

   

(167)

Prepaid expenses and other current assets

   

101

   

33

   

669

   

76

Accounts payable and accrued expenses

   

(13)

   

70

   

(7)

   

51

Accrued compensation

   

105

   

82

   

(7)

   

(3)

Income taxes payable

   

147

   

694

   

158

   

468

Changes in funded status of retirement plans

   

10

   

(15)

   

36

   

21

Other

   

14

   

43

   

(107)

   

(16)

Cash flows from operating activities

   

2,145

   

1,929

   

7,189

   

5,363

                         

Cash flows from investing activities

                       

Capital expenditures

   

(323)

   

(231)

   

(1,131)

   

(695)

Proceeds from asset sales

   

9

   

   

9

   

40

Purchases of short-term investments

   

(333)

   

(1,450)

   

(5,641)

   

(4,555)

Proceeds from short-term investments

   

2,163

   

790

   

6,708

   

4,095

Other

   

(11)

   

(7)

   

(23)

   

(12)

Cash flows from investing activities

   

1,505

   

(898)

   

(78)

   

(1,127)

                         

Cash flows from financing activities

                       

Proceeds from issuance of debt

   

   

494

   

1,500

   

1,099

Repayment of debt

   

   

   

(500)

   

(625)

Dividends paid

   

(736)

   

(611)

   

(2,555)

   

(2,104)

Stock repurchases

   

(2,009)

   

(706)

   

(5,100)

   

(2,556)

Proceeds from common stock transactions

   

38

   

162

   

373

   

483

Other

   

(7)

   

(10)

   

(47)

   

(31)

Cash flows from financing activities

   

(2,714)

   

(671)

   

(6,329)

   

(3,734)

                         

Net change in cash and cash equivalents

   

936

   

360

   

782

   

502

Cash and cash equivalents at beginning of period

   

1,502

   

1,296

   

1,656

   

1,154

Cash and cash equivalents at end of period

 

$

2,438

 

$

1,656

 

$

2,438

 

$

1,656

 

 

Quarterly segment results

Amounts are in millions of dollars.

     

4Q18

   

4Q17

 

Change

Analog:

               

Revenue

 

$

2,638

 

$

2,535

 

4%

Operating profit

 

$

1,233

 

$

1,188

 

4%

Embedded Processing:

               

Revenue

 

$

791

 

$

896

 

(12)%

Operating profit

 

$

234

 

$

307

 

(24)%

Other:

               

Revenue

 

$

288

 

$

319

 

(10)%

Operating profit*

 

$

49

 

$

68

 

(28)%

 

* 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 Signal Chain and Power, partially offset by declines in High Volume.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

Embedded Processing: (includes Connected Microcontrollers and Processors)

  • Revenue decreased in both product lines.
  • Operating profit decreased primarily due to lower revenue and associated gross profit.

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

  • Revenue decreased by $31 million, and operating profit decreased by $19 million.


Annual segment results

Amounts are in millions of dollars.

     

2018

   

2017

 

Change

Analog:

               

Revenue

 

$

10,801

 

$

9,900

 

9%

Operating profit

 

$

5,109

 

$

4,468

 

14%

Embedded Processing:

               

Revenue

 

$

3,554

 

$

3,498

 

2%

Operating profit

 

$

1,205

 

$

1,143

 

5%

Other:

               

Revenue

 

$

1,429

 

$

1,563

 

(9)%

Operating profit*

 

$

399

 

$

472

 

(15)%

 

* Includes acquisition charges and restructuring charges/other.

 

Compared with the prior year:

Analog: 

  • Revenue increased due to Power and Signal Chain, partially offset by declines in High Volume.
  • Operating profit increased due to higher revenue and associated gross profit.

Embedded Processing: 

  • Revenue increased due to Connected Microcontrollers. Processors was about even.
  • Operating profit increased primarily due to higher gross profit.

Other: 

  • Revenue decreased by $134 million, and operating profit decreased by $73 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).

We believe that free cash flow and the associated ratios provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to shareholders, as well as insight into our 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,

   
   

2018

 

2017

 

Change

Cash flow from operations (GAAP)

 

$

7,189

 

$

5,363

 

34%

Capital expenditures

   

(1,131)

   

(695)

   

Free cash flow (non-GAAP)

 

$

6,058

 

$

4,668

 

30%

                 

Revenue

 

$

15,784

 

$

14,961

   
                 

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

   

45.5%

   

35.8%

   

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

   

38.4%

   

31.2%

   

 

This release also includes references to an annual operating tax rate, a non-GAAP term we use to describe the estimated annual effective tax rate, a GAAP measure that by definition does not include discrete tax items. We believe 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 our end markets;
  • Our 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 company inventory that results from demand that differs from projections;
  • Economic, social and political conditions in the countries in which we, 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;
  • Evolving cybersecurity threats to our information technology systems or those of our customers or suppliers;
  • Natural events such as severe weather, geological events or health epidemics in the locations in which we, our customers or our suppliers operate;
  • Our ability to develop, manufacture and market innovative products in a rapidly changing technological environment;
  • 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;
  • 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 we are or may become subject, or actions of enforcement authorities, that restrict our ability to manufacture or ship our products or operate our 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 our products, manufacturing, services, design or communications, or recalls by our customers for a product containing one of our parts;
  • Changes in tax law and accounting standards that can impact the tax rate applicable to us, 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 one of our customers or distributors with respect to TI-consigned inventory;
  • Financial difficulties of our distributors or their promotion of competing product lines to our 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;
  • Our 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 and despite changes in the regulatory environment;
  • Our ability to maintain and enforce a strong intellectual property portfolio and maintain freedom of operation in all jurisdictions where we conduct business; or our exposure to infringement claims;
  • Instability in the global credit and financial markets that affects our 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;
  • Our ability to recruit and retain skilled engineering, management and technical personnel;
  • Our 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 our 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

Media, Cindy Goforth, 214-479-7395, cgoforth@ti.com or Whitney Jodry, 214-479-0952, wjodry@ti.com, or Investor Relations, Dave Pahl, 214-479-4629, dpahl@ti.com (Please do not publish these numbers or email addresses.)