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TI reports 1Q18 financial results and shareholder returns

Conference call on TI website at 3:30 p.m. Central time today

www.ti.com/ir

Apr 24, 2018


DALLAS, April 24, 2018 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported first-quarter revenue of $3.79 billion, net income of $1.37 billion and earnings per share of $1.35. Earnings per share include 14 cents in tax-related benefits 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 increased 11 percent from the same quarter a year ago. Demand for our Analog and Embedded Processing products continued to be strong in the industrial and automotive markets.
  • "Our cash flow from operations of $5.7 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 17 percent from a year ago to $4.9 billion, or 32.1 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 $5.1 billion to owners in the past 12 months 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, emphasizing their sustainability.
  • "TI's second-quarter outlook is for revenue in the range of $3.78 billion to $4.10 billion, and earnings per share between $1.19 and $1.39, which includes an estimated $10 million discrete tax benefit.
  • "We now expect our ongoing annual operating tax rate to be about 16 percent starting in 2019 and 20 percent in 2018, lower than our previous expectations of 18 percent and 23 percent, respectively."

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.



1Q18


1Q17


Change

Revenue

$

3,789

$

3,402


11%

Operating profit

$

1,548

$

1,252


24%

Net income

$

1,366

$

997


37%

Earnings per share

$

1.35

$

0.97


39%

 

Cash generation

Amounts are in millions of dollars.






Trailing 12 Months




1Q18



1Q18



1Q17


Change

Cash flow from operations


$

1,112


$

5,680


$

4,756


19%

Capital expenditures


$

189


$

757


$

534


42%

Free cash flow


$

923


$

4,923


$

4,222


17%

Free cash flow % of revenue






32.1%



30.7%



 

Cash return

Amounts are in millions of dollars.






Trailing 12 Months




1Q18



1Q18



1Q17


Change

Dividends paid


$

611


$

2,215


$

1,763


26%

Stock repurchases


$

873


$

2,879


$

2,052


40%

Total cash returned


$

1,484


$

5,094


$

3,815


34%


 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income

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




For Three Months Ended



March 31,



2018


2017

Revenue


$

3,789


$

3,402

Cost of revenue (COR)



1,342



1,258

Gross profit



2,447



2,144

Research and development (R&D)



385



369

Selling, general and administrative (SG&A)



433



439

Acquisition charges



80



80

Restructuring charges/other



1



4

Operating profit



1,548



1,252

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



28



21

Interest and debt expense



23



18

Income before income taxes



1,553



1,255

Provision for income taxes



187



258

Net income


$

1,366


$

997








Diluted earnings per common share


$

1.35


$

.97








Average shares outstanding (millions):







Basic



983



998

Diluted



1,005



1,019








Cash dividends declared per common share


$

.62


$

.50









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)


$

316


$

382

Discrete tax items



(129)



(124)

Provision for income taxes (effective taxes)


$

187


$

258


Annual operating tax rate



20%



30%

Effective tax rate



12%



21%


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


$

1,366


$

997

Income allocated to RSUs



(11)



(10)

Income allocated to common stock for diluted EPS


$

1,355


$

987


 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)




March 31,



2018


2017

Assets







Current assets:







Cash and cash equivalents


$

1,717


$

1,073

Short-term investments



2,362



1,976

Accounts receivable, net of allowances of ($8) and ($11)



1,454



1,337

Raw materials



144



102

Work in process



1,076



1,017

Finished goods



812



724

Inventories



2,032



1,843

Prepaid expenses and other current assets



1,025



811

Total current assets



8,590



7,040

Property, plant and equipment at cost



4,907



4,833

Accumulated depreciation



(2,171)



(2,332)

Property, plant and equipment



2,736



2,501

Long-term investments



271



241

Goodwill



4,362



4,362

Acquisition-related intangibles



866



1,184

Deferred tax assets



218



361

Capitalized software licenses



102



116

Overfunded retirement plans



215



102

Other long-term assets



147



71

Total assets


$

17,507


$

15,978








Liabilities and stockholders' equity







Current liabilities:







Current portion of long-term debt


$

500


$

378

Accounts payable



488



429

Accrued compensation



344



352

Income taxes payable



133



77

Accrued expenses and other liabilities



395



366

Total current liabilities



1,860



1,602

Long-term debt



3,578



2,980

Underfunded retirement plans



92



97

Deferred tax liabilities



53



36

Other long-term liabilities



1,282



624

Total liabilities



6,865



5,339

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



1,770



1,597

Retained earnings



35,619



33,595

Treasury common stock at cost







Shares: March 31, 2018 – 759,098,020; March 31, 2017 – 743,085,976



(28,096)



(25,767)

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



(392)



(527)

Total stockholders' equity



10,642



10,639

Total liabilities and stockholders' equity


$

17,507


$

15,978

 

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)




For Three Months Ended



March 31,



2018


2017

Cash flows from operating activities







Net income


$

1,366


$

997

Adjustments to Net income:







Depreciation



137



139

Amortization of acquisition-related intangibles



80



80

Amortization of capitalized software



12



11

Stock compensation



70



68

Deferred taxes



(31)



9

Increase (decrease) from changes in:







Accounts receivable



(176)



(68)

Inventories



(97)



(53)

Prepaid expenses and other current assets



356



(71)

Accounts payable and accrued expenses



(51)



(78)

Accrued compensation



(372)



(356)

Income taxes payable



(131)



149

Changes in funded status of retirement plans



(15)



(14)

Other



(36)



(18)

Cash flows from operating activities



1,112



795








Cash flows from investing activities







Capital expenditures



(189)



(127)

Proceeds from asset sales





40

Purchases of short-term investments



(996)



(757)

Proceeds from short-term investments



1,455



1,120

Other



(4)



(9)

Cash flows from investing activities



266



267








Cash flows from financing activities







Repayment of debt





(250)

Dividends paid



(611)



(500)

Stock repurchases



(873)



(550)

Proceeds from common stock transactions



178



161

Other



(11)



(4)

Cash flows from financing activities



(1,317)



(1,143)








Net change in Cash and cash equivalents



61



(81)

Cash and cash equivalents at beginning of period



1,656



1,154

Cash and cash equivalents at end of period


$

1,717


$

1,073


 

Segment results

Amounts are in millions of dollars.




1Q18



1Q17


Change

Analog:









Revenue


$

2,566


$

2,256


14%

Operating profit


$

1,166


$

935


25%

Embedded Processing:









Revenue


$

926


$

803


15%

Operating profit


$

328


$

240


37%

Other:









Revenue


$

297


$

343


(13)%

Operating profit*


$

54


$

77


(30)%


* 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 was about even.
  • Operating profit increased due to higher revenue and associated gross profit.

Embedded Processing: (includes Connected Microcontrollers and Processors)

  • Revenue increased in both product lines, led by Processors.
  • Operating profit increased primarily due to higher revenue and associated gross profit.

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

  • Revenue decreased by $46 million, and operating profit declined by $23 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





March 31,





2018


2017


Change

Cash flow from operations (GAAP)


$

5,680


$

4,756


19%

Capital expenditures



(757)



(534)



Free cash flow (non-GAAP)


$

4,923


$

4,222


17%










Revenue


$

15,348


$

13,764












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



37.0%



34.6%



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



32.1%



30.7%



 

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.

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TXN-G

 

SOURCE Texas Instruments Incorporated