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July 23, 2019

TI reports second quarter 2019 financial results and shareholder returns

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

DALLAS, July 23, 2019 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported second quarter revenue of $3.67 billion, net income of $1.31 billion and earnings per share of $1.36. Earnings per share include a 7-cent benefit for items that were 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 9% from the same quarter a year ago due to broad-based weakness.
  • "In our core businesses, Analog revenue declined 6% and Embedded Processing declined 16% from the same quarter a year ago.
  • "Our cash flow from operations of $7.2 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was $5.9 billion and 39% 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 $8.0 billion to owners in the past 12 months 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 47% of free cash flow, underscoring their sustainability.
  • "TI's third quarter outlook is for revenue in the range of $3.65 billion to $3.95 billion, and earnings per share between $1.31 and $1.53, which includes an estimated $10 million discrete tax benefit. We continue to expect our annual operating tax rate to be about 16% in 2019."

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.

   

2Q19  

 

2Q18  

 

Change

Revenue

$

3,668

$

4,017

 

(9)%

Operating profit

$

1,506

$

1,712

 

(12)%

Net income

$

1,305

$

1,405

 

(7)%

Earnings per share

$

1.36

$

1.40

 

(3)%

 

Cash generation

Amounts are in millions of dollars.

         

               Trailing 12 Months                

     

2Q19  

   

2Q19  

   

2Q18  

 

Change

Cash flow from operations

 

$

1,796

 

$

7,154

 

$

6,589

 

9%

Capital expenditures

 

$

284

 

$

1,228

 

$

855

 

44%

Free cash flow

 

$

1,512

 

$

5,926

 

$

5,734

 

3%

Free cash flow % of revenue

         

38.9%

   

36.6%

   

 

Cash return

Amounts are in millions of dollars.

         

               Trailing 12 Months                 

     

2Q19 

   

2Q19  

   

2Q18  

 

Change

Dividends paid

 

$

722

 

$

2,784

 

$

2,323

 

20%

Stock repurchases

 

$

863

 

$

5,224

 

$

3,247

 

61%

Total cash returned

 

$

1,585

 

$

8,008

 

$

5,570

 

44%

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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

 
   

For Three Months Ended

   

June 30,

   

2019

 

2018

Revenue

 

$

3,668

 

$

4,017

Cost of revenue (COR)

   

1,308

   

1,398

Gross profit

   

2,360

   

2,619

Research and development (R&D)

   

390

   

384

Selling, general and administrative (SG&A)

   

420

   

441

Acquisition charges

   

80

   

79

Restructuring charges/other

   

(36)

   

3

Operating profit

   

1,506

   

1,712

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

   

52

   

24

Interest and debt expense

   

44

   

30

Income before income taxes

   

1,514

   

1,706

Provision for income taxes

   

209

   

301

Net income

 

$

1,305

 

$

1,405

             

Diluted earnings per common share

 

$

1.36

 

$

1.40

             

Average shares outstanding (millions):

           

Basic

   

937

   

977

Diluted

   

953

   

997

             

Cash dividends declared per common share

 

$

.77

 

$

.62

             
 

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)

 

$

238

 

$

344

Discrete tax items

   

(29)

   

(43)

Provision for income taxes (effective taxes)

 

$

209

 

$

301

 

Annual operating tax rate

   

16%

   

20%

Effective tax rate

   

14%

   

18%

 

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

 

$

1,305

 

$

1,405

Income allocated to RSUs

   

(8)

   

(11)

Income allocated to common stock for diluted EPS

 

$

1,297

 

$

1,394

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

 
   

June 30,

   

2019

 

2018

Assets

           

Current assets:

           

Cash and cash equivalents

 

$

3,813

 

$

2,919

Short-term investments

   

405

   

2,211

Accounts receivable, net of allowances of ($15) and ($9)

   

1,419

   

1,551

Raw materials

   

176

   

155

Work in process

   

958

   

1,079

Finished goods

   

945

   

856

Inventories

   

2,079

   

2,090

Prepaid expenses and other current assets

   

240

   

821

Total current assets

   

7,956

   

9,592

Property, plant and equipment at cost

   

5,706

   

5,025

Accumulated depreciation

   

(2,341)

   

(2,170)

Property, plant and equipment

   

3,365

   

2,855

Long-term investments

   

300

   

271

Goodwill

   

4,362

   

4,362

Acquisition-related intangibles

   

469

   

787

Deferred tax assets

   

261

   

205

Capitalized software licenses

   

88

   

101

Overfunded retirement plans

   

104

   

205

Other long-term assets

   

479

   

149

Total assets

 

$

17,384

 

$

18,527

             

Liabilities and stockholders' equity

           

Current liabilities:

           

Current portion of long-term debt

 

$

1,249

 

$

Accounts payable

   

412

   

492

Accrued compensation

   

476

   

472

Income taxes payable

   

87

   

120

Accrued expenses and other liabilities

   

422

   

382

Total current liabilities

   

2,646

   

1,466

Long-term debt

   

4,558

   

5,066

Underfunded retirement plans

   

121

   

82

Deferred tax liabilities

   

49

   

50

Other long-term liabilities

   

1,524

   

1,229

Total liabilities

   

8,898

   

7,893

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

   

2,003

   

1,867

Retained earnings

   

38,974

   

36,413

Treasury common stock at cost

           

Shares: June 30, 2019 – 806,251,136; June 30, 2018 – 766,450,417

   

(33,775)

   

(29,016)

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

   

(457)

   

(371)

Total stockholders' equity

   

8,486

   

10,634

Total liabilities and stockholders' equity

 

$

17,384

 

$

18,527

 

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

 
   

For Three Months Ended

   

June 30,

   

2019

 

2018

Cash flows from operating activities

           

Net income

 

$

1,305

 

$

1,405

Adjustments to net income:

           

Depreciation

   

173

   

144

Amortization of acquisition-related intangibles

   

80

   

79

Amortization of capitalized software

   

14

   

10

Stock compensation

   

67

   

74

Gains on sales of assets

   

(21)

   

Deferred taxes

   

31

   

1

Increase (decrease) from changes in:

           

Accounts receivable

   

21

   

(97)

Inventories

   

52

   

(58)

Prepaid expenses and other current assets

   

18

   

61

Accounts payable and accrued expenses

   

(26)

   

6

Accrued compensation

   

129

   

123

Income taxes payable

   

(13)

   

120

Changes in funded status of retirement plans

   

2

   

29

Other

   

(36)

   

(71)

Cash flows from operating activities

   

1,796

   

1,826

             

Cash flows from investing activities

           

Capital expenditures

   

(284)

   

(249)

Proceeds from asset sales

   

28

   

Purchases of short-term investments

   

(239)

   

(1,213)

Proceeds from short-term investments

   

200

   

1,375

Other

   

37

   

6

Cash flows from investing activities

   

(258)

   

(81)

             

Cash flows from financing activities

           

Proceeds from issuance of long-term debt

   

   

1,500

Repayment of debt

   

   

(500)

Dividends paid

   

(722)

   

(606)

Stock repurchases

   

(863)

   

(1,018)

Proceeds from common stock transactions

   

146

   

102

Other

   

(6)

   

(21)

Cash flows from financing activities

   

(1,445)

   

(543)

             

Net change in cash and cash equivalents

   

93

   

1,202

Cash and cash equivalents at beginning of period

   

3,720

   

1,717

Cash and cash equivalents at end of period

 

$

3,813

 

$

2,919

 

 

Segment results

Amounts are in millions of dollars.

     

2Q19  

   

2Q18  

 

Change

Analog:

               

Revenue

 

$

2,534

 

$

2,690

 

(6)%

Operating profit

 

$

1,108

 

$

1,263

 

(12)%

Embedded Processing:

               

Revenue

 

$

790

 

$

943

 

(16)%

Operating profit

 

$

265

 

$

334

 

(21)%

Other:

               

Revenue

 

$

344

 

$

384

 

(10)%

Operating profit*

 

$

133

 

$

115

 

16%

 

* Includes acquisition charges and restructuring charges/other.

 

Compared with the year-ago quarter:

Analog: (includes Power, Signal Chain and High Volume)

  • Revenue decreased in High Volume, Power and Signal Chain.
  • Operating profit decreased primarily due to lower revenue and associated gross profit.

Embedded Processing:(includes Connected Microcontrollers and Processors) 

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

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

  • Revenue decreased by $40 million. Operating profit increased by $18 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 12 Months Ended

   
   

June 30,

   
   

2019

 

2018

 

Change

Cash flow from operations (GAAP)

 

$

7,154

 

$

6,589

 

9%

Capital expenditures

   

(1,228)

   

(855)

   

Free cash flow (non-GAAP)

 

$

5,926

 

$

5,734

 

3%

                 

Revenue

 

$

15,240

 

$

15,672

   
                 

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

   

46.9%

   

42.0%

   

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

   

38.9%

   

36.6%

   

 

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 helps differentiate from the effective tax rate, which includes discrete tax items.

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;
  • 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;
  • 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;
  • 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 significant 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, and effectively manage key employee succession;
  • 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. If we do update any forward-looking statement, you should not infer that we will make additional updates with respect to that statement or any other forward-looking statement.

About Texas Instruments

From connected cars and intelligent homes to self-monitoring health devices and automated factories, Texas Instruments Incorporated (TI) (NASDAQ: TXN) products are at work in virtually every type of electronic system. With operations in more than 30 countries, we engineer, manufacture, test and sell analog and embedded semiconductor chips. Our employees, about 30,000 worldwide, are driven by core values of integrity, innovation and commitment, and work every day to shape the future of technology. Learn more at www.TI.com.

TI trademarks:
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Other trademarks are the property of their respective owners.

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SOURCE Texas Instruments Incorporated