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TI reports 2Q17 financial results and shareholder returns

Conference call on TI website at 4 p.m. Central time today

www.ti.com/ir

Jul 25, 2017

DALLAS, July 25, 2017 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported second-quarter revenue of $3.69 billion, net income of $1.06 billion and earnings per share of $1.03.

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

  • "Revenue increased 13 percent from the same quarter a year ago. Demand for our products continued to be strong in the automotive market and continued to strengthen in the industrial market.
  • "In our core businesses, Analog revenue grew 18 percent and Embedded Processing revenue grew 15 percent from the same quarter a year ago. Operating margin increased in both businesses.
  • "Gross margin of 64.3 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 $4.6 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was $4.0 billion and represents 28.5 percent of revenue.
  • "We have returned $4.1 billion to owners in the past 12 months through stock repurchases and dividends.
  • "Our balance sheet remains strong with $3.0 billion of cash and short-term investments at the end of the quarter, about 80 percent of which was owned by the company's U.S. entities. Inventory ended the quarter at 133 days.
  • "TI's third-quarter outlook is for revenue in the range of $3.74 billion to $4.06 billion, and earnings per share between $1.04 and $1.18, 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.



2Q17


2Q16


Change

Revenue

$

3,693

$

3,273


13%

Operating profit

$

1,480

$

1,131


31%

Net income

$

1,056

$

819


29%

Earnings per share

$

1.03

$

0.79


30%

 

Cash generation

Amounts are in millions of dollars.






Trailing 12 Months




2Q17



2Q17



2Q16


Change

Cash flow from operations


$

917


$

4,564


$

4,624


-1%

Capital expenditures


$

151


$

527


$

585


-10%

Free cash flow


$

766


$

4,037


$

4,039


0%

Free cash flow % of revenue






28.5%



31.3%



 

Capital expenditures for the past 12 months were about 4 percent of revenue, consistent with TI's long-term expectations.

Cash return

Amounts are in millions of dollars.






Trailing 12 Months




2Q17



2Q17



2Q16


Change

Dividends paid


$

498


$

1,879


$

1,499


25%

Stock repurchases


$

650


$

2,175


$

2,574


-16%

Total cash returned


$

1,148


$

4,054


$

4,073


0%


 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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




For Three Months Ended



June 30,



2017


2016

Revenue


$

3,693


$

3,273

Cost of revenue (COR)



1,319



1,266

Gross profit



2,374



2,007

Research and development (R&D)



378



341

Selling, general and administrative (SG&A)



434



454

Acquisition charges



79



79

Restructuring charges/other



3



2

Operating profit



1,480



1,131

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



26



(8)

Interest and debt expense



20



21

Income before income taxes



1,486



1,102

Provision for income taxes



430



283

Net income


$

1,056


$

819








Diluted earnings per common share


$

1.03


$

.79








Average shares outstanding (millions):







Basic



994



1,004

Diluted



1,015



1,020








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)


$

458


$

325

Discrete tax items



(28)



(42)

Provision for income taxes (effective taxes)


$

430


$

283


Annual operating tax rate



31%



30%

Effective tax rate



29%



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


$

1,056


$

819

Income allocated to RSUs



(10)



(10)

Income allocated to common stock for diluted EPS


$

1,046


$

809


 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)




June 30,



2017


2016

Assets







Current assets:







Cash and cash equivalents


$

1,140


$

1,235

Short-term investments



1,844



1,304

Accounts receivable, net of allowances of ($16) and ($20)



1,469



1,348

Raw materials



109



104

Work in process



1,099



946

Finished goods



739



826

Inventories



1,947



1,876

Prepaid expenses and other current assets



1,111



926

Total current assets



7,511



6,689

Property, plant and equipment at cost



4,656



5,152

Accumulated depreciation



(2,142)



(2,595)

Property, plant and equipment, net



2,514



2,557

Long-term investments



250



224

Goodwill, net



4,362



4,362

Acquisition-related intangibles, net



1,105



1,424

Deferred income taxes



412



231

Capitalized software licenses, net



114



52

Overfunded retirement plans



99



85

Other assets



71



69

Total assets


$

16,438


$

15,693








Liabilities and stockholders' equity







Current liabilities:







Current portion of long-term debt


$

499


$

637

Accounts payable



450



416

Accrued compensation



489



493

Income taxes payable



86



58

Accrued expenses and other liabilities



353



387

Total current liabilities



1,877



1,991

Long-term debt



3,084



2,975

Underfunded retirement plans



101



193

Deferred income taxes



33



40

Deferred credits and other liabilities



635



532

Total liabilities



5,730



5,731

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



1,683



1,598

Retained earnings



34,149



31,933

Treasury common stock at cost







Shares: June 30, 2017 – 749,098,850; June 30, 2016 – 737,467,669



(26,345)



(24,774)

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



(520)



(536)

Total stockholders' equity



10,708



9,962

Total liabilities and stockholders' equity


$

16,438


$

15,693


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



June 30,



2017


2016

Cash flows from operating activities







Net income


$

1,056


$

819

Adjustments to Net income:







Depreciation



134



155

Amortization of acquisition-related intangibles



79



79

Amortization of capitalized software



12



8

Stock compensation



75



76

Deferred income taxes



(54)



(59)

Increase (decrease) from changes in:







Accounts receivable



(132)



(76)

Inventories



(104)



(71)

Prepaid expenses and other current assets



83



(8)

Accounts payable and accrued expenses



12



40

Accrued compensation



131



147

Income taxes payable



(385)



(25)

Changes in funded status of retirement plans



19



14

Other



(9)



10

Cash flows from operating activities



917



1,109








Cash flows from investing activities







Capital expenditures



(151)



(158)

Purchases of short-term investments



(1,130)



(993)

Proceeds from short-term investments



1,265



1,210

Other



8



6

Cash flows from investing activities



(8)



65








Cash flows from financing activities







Proceeds from issuance of long-term debt



605



499

Repayment of debt



(375)



(1,000)

Dividends paid



(498)



(382)

Stock repurchases



(650)



(527)

Proceeds from common stock transactions



84



193

Other



(8)



(3)

Cash flows from financing activities



(842)



(1,220)








Net change in Cash and cash equivalents



67



(46)

Cash and cash equivalents at beginning of period



1,073



1,281

Cash and cash equivalents at end of period


$

1,140


$

1,235


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


 

Segment results

Amounts are in millions of dollars.




2Q17



2Q16


Change

Analog:









Revenue


$

2,411


$

2,044


18%

Operating profit


$

1,077


$

781


38%

Embedded Processing:









Revenue


$

868


$

755


15%

Operating profit


$

271


$

192


41%

Other:









Revenue


$

414


$

474


-13%

Operating profit*


$

132


$

158


-16%


* Includes Acquisition charges and Restructuring charges/other.

 

Compared with the year-ago quarter:

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

  • Revenue increased primarily due to Power and Signal Chain, each of which grew by about the same amount. High Volume also grew.
  • 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 by about the same amount.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

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

  • Revenue decreased by $60 million, and operating profit declined by $26 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





June 30,





2017


2016


Change

Cash flow from operations (GAAP)


$

4,564


$

4,624


-1%

Capital expenditures



(527)



(585)



Free cash flow (non-GAAP)


$

4,037


$

4,039


0%










Revenue


$

14,184


$

12,899












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



32.2%



35.8%



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



28.5%



31.3%



 

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 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.

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TXN-G

 

SOURCE Texas Instruments Incorporated