TI reports second quarter 2020 financial results and shareholder returns

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

DALLAS, July 21, 2020 /PRNewswire/ -- Texas Instruments Incorporated (TI) (Nasdaq: TXN) today reported second quarter revenue of $3.24 billion, net income of $1.38 billion and earnings per share of $1.48. Earnings per share include a 33-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 12% from the same quarter a year ago, driven primarily by weakness in the automotive market.
  • "In our core businesses, Analog revenue declined 4% and Embedded Processing declined 31% from the same quarter a year ago. Analog and Embedded Processing both had positive sequential growth in the second quarter excluding the automotive market.
  • "Our cash flow from operations of $6.3 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the same period was $5.7 billion and 42% 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 $6.7 billion to owners in the past 12 months through stock repurchases and dividends. Over the same period, our dividends represented 56% of free cash flow, underscoring their sustainability. Together, our stock repurchases and dividends reflect our continued commitment to return all free cash flow to our owners.
  • "TI's third quarter outlook is for revenue in the range of $3.26 billion to $3.54 billion, and earnings per share between $1.14 and $1.34."

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.


Q2 2020


Q2 2019


Change

Revenue

$

3,239


$

3,668


(12)%

Operating profit

$

1,228


$

1,506


(18)%

Net income

$

1,380


$

1,305


6%

Earnings per share

$

1.48


$

1.36


9%

 

Cash generation

Amounts are in millions of dollars.




Trailing 12 Months


Q2 2020


Q2 2020


Q2 2019


Change

Cash flow from operations

$

1,720


$

6,317


$

7,154


(12)%

Capital expenditures

$

130


$

603


$

1,228


(51)%

Free cash flow

$

1,590


$

5,714


$

5,926


(4)%

Free cash flow % of revenue



41.7%


38.9%



 

Cash return

Amounts are in millions of dollars.




Trailing 12 Months


Q2 2020


Q2 2020


Q2 2019


Change

Dividends paid

$

823


$

3,226


$

2,784


16%

Stock repurchases

$

882


$

3,468


$

5,224


(34)%

Total cash returned

$

1,705


$

6,694


$

8,008


(16)%

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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




For Three Months Ended
June 30,



2020


2019

Revenue


$

3,239


$

3,668

Cost of revenue (COR)


1,157


1,308

Gross profit


2,082


2,360

Research and development (R&D)


379


390

Selling, general and administrative (SG&A)


401


420

Acquisition charges


50


80

Restructuring charges/other


24


(36)

Operating profit


1,228


1,506

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


99


52

Interest and debt expense


48


44

Income before income taxes


1,279


1,514

Provision for income taxes


(101)


209

Net income


$

1,380


$

1,305







Diluted earnings per common share


$

1.48


$

1.36







Average shares outstanding (millions):






Basic


916



937

Diluted


927



953







Cash dividends declared per common share


$

.90


$

.77








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)


$

164


$

238

Discrete tax items



(265)


(29)

Provision for income taxes (effective taxes)


$

(101)


$

209







Annual operating tax rate


13%


16%

Effective tax rate


(8)%


14%






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


$

1,380


$

1,305

Income allocated to RSUs


(7)


(8)

Income allocated to common stock for diluted EPS


$

1,373


$

1,297


 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)



June 30,


2020


2019

Assets




Current assets:




Cash and cash equivalents

$

4,294


$

3,813

Short-term investments

666


405

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

1,176


1,419

Raw materials

182


176

Work in process

977


958

Finished goods

977


945

Inventories

2,136


2,079

Prepaid expenses and other current assets

216


240

Total current assets

8,488


7,956

Property, plant and equipment at cost

5,741


5,706

Accumulated depreciation

(2,540)


(2,341)

Property, plant and equipment

3,201


3,365

Long-term investments

36


300

Goodwill

4,362


4,362

Acquisition-related intangibles

240


469

Deferred tax assets

236


261

Capitalized software licenses

141


88

Overfunded retirement plans

223


104

Other long-term assets

518


479

Total assets

$

17,445


$

17,384





Liabilities and stockholders' equity




Current liabilities:




Current portion of long-term debt

$

551


$

1,249

Accounts payable

409


412

Accrued compensation

505


476

Income taxes payable

179


87

Accrued expenses and other liabilities

519


422

Total current liabilities

2,163


2,646

Long-term debt

6,245


4,558

Underfunded retirement plans

99


121

Deferred tax liabilities

60


49

Other long-term liabilities

1,234


1,524

Total liabilities

9,801


8,898

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

2,182


2,003

Retained earnings

40,780


38,974

Treasury common stock at cost




Shares: June 30, 2020 – 825,225,307; June 30, 2019 – 806,251,136

(36,725)


(33,775)

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

(334)


(457)

Total stockholders' equity

7,644


8,486

Total liabilities and stockholders' equity

$

17,445


$

17,384


 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)



For Three Months Ended


June 30,


2020


2019

Cash flows from operating activities




Net income

$

1,380


$

1,305

Adjustments to net income:




Depreciation

184


173

Amortization of acquisition-related intangibles

50


80

Amortization of capitalized software

15


14

Stock compensation

69


67

Gains on sales of assets

(1)


(21)

Deferred taxes

(30)


31

Increase (decrease) from changes in:




Accounts receivable

140


21

Inventories

(133)


52

Prepaid expenses and other current assets

63


18

Accounts payable and accrued expenses

73


(26)

Accrued compensation

148


129

Income taxes payable

(255)


(13)

Changes in funded status of retirement plans

(10)


2

Other

27


(36)

Cash flows from operating activities

1,720


1,796





Cash flows from investing activities




Capital expenditures

(130)


(284)

Proceeds from asset sales

1


28

Purchases of short-term investments

(249)


(239)

Proceeds from short-term investments

1,810


200

Other

5


37

Cash flows from investing activities

1,437


(258)





Cash flows from financing activities




Proceeds from issuance of long-term debt

749


Repayment of debt

(500)


Dividends paid

(823)


(722)

Stock repurchases

(882)


(863)

Proceeds from common stock transactions

87


146

Other

(12)


(6)

Cash flows from financing activities

(1,381)


(1,445)





Net change in cash and cash equivalents

1,776


93

Cash and cash equivalents at beginning of period

2,518


3,720

Cash and cash equivalents at end of period

$

4,294


$

3,813

 

Segment results

Amounts are in millions of dollars.


Q2 2020


Q2 2019


Change

Analog:






Revenue

$

2,434


$

2,534



(4)%

Operating profit

$

1,053


$

1,108



(5)%

Embedded Processing:






Revenue

$

546


$

790



(31)%

Operating profit

$

125


$

265



(53)%

Other:






Revenue

$

259


$

344



(25)%

Operating profit*

$

50


$

133



(62)%


* 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 and Power, while Signal Chain was about even.
  • Operating profit decreased 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 $85 million, and operating profit decreased $83 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,



2020


2019


Change

Cash flow from operations (GAAP)

$

6,317


$

7,154


(12)%

Capital expenditures

(603)


(1,228)



Free cash flow (non-GAAP)

$

5,714


$

5,926


(4)%







Revenue

$

13,689


$

15,240









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

46.1%


46.9%



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

41.7%


38.9%



 

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:

  • The duration and scope of the COVID-19 pandemic, government and other third-party responses to it and the consequences for the global economy, including to our business and the businesses of our suppliers, customers and distributors;
  • Economic, social and political conditions, and natural events in the countries in which we, our customers or our suppliers operate, including global trade policies;
  • Market demand for semiconductors, particularly in the industrial and automotive markets, and customer demand that differs from forecasts;
  • Our ability to compete in products and prices in an intensely competitive industry;
  • Evolving cybersecurity and other threats relating to our information technology systems or those of our customers or suppliers;
  • Our ability to successfully implement and realize opportunities from strategic, business and organizational changes, or our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings;
  • Our ability to develop, manufacture and market innovative products in a rapidly changing technological environment, and our timely implementation of new manufacturing technologies and installation of manufacturing equipment;
  • Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;
  • Product liability, warranty or other claims relating to our products, manufacturing, delivery, 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 operate our business, or subject us to fines, penalties or other legal liability;
  • Changes in tax law and accounting standards that 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 disputes with 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 changing 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;
  • Increases in health care and pension benefit costs;
  • Our ability to recruit and retain skilled personnel, and effectively manage key employee succession; and
  • Impairments of our non-financial assets.

For a more detailed discussion of these factors, see the Risk factors discussion in Part II Item 1A of TI's most recent Form 10-Q. 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

Texas Instruments Incorporated (Nasdaq: TXN) is a global semiconductor company that designs, manufactures, tests and sells analog and embedded processing chips for markets such as industrial, automotive, personal electronics, communications equipment and enterprise systems. Our passion to create a better world by making electronics more affordable through semiconductors is alive today, as each generation of innovation builds upon the last to make our technology smaller, more efficient, more reliable and more affordable – making it possible for semiconductors to go into electronics everywhere. We think of this as Engineering Progress. It's what we do and have been doing for decades. Learn more at TI.com.

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Other trademarks are the property of their respective owners.

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