TI reports 3Q17 financial results and shareholder returns
DALLAS, Oct. 24, 2017 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported third-quarter revenue of $4.12 billion, net income of $1.29 billion and earnings per share of $1.26. Earnings per share include a 2-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 increased 12 percent from the same quarter a year ago. Demand
for our products continued to be strong in the industrial and automotive
markets.
-- "In our core businesses, Analog revenue grew 16 percent and Embedded
Processing revenue grew 17 percent from the same quarter a year ago.
Operating margin increased in both businesses.
-- "Gross margin of 64.5 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 $4.8 billion for the trailing 12
months again underscored the strength of our business model. Free cash
flow for the trailing 12 months was $4.2 billion and represents 29.0
percent of revenue.
-- "We have returned $4.3 billion to owners in the past 12 months through
dividends and stock repurchases. In September, we announced we would
increase our dividend by 24 percent and also increased our share
repurchase authorizations by $6 billion, which together reflect our
commitment to return all free cash flow to our owners.
-- "TI's fourth-quarter outlook is for revenue in the range of $3.57
billion to $3.87 billion, and earnings per share between $1.01 and
$1.15, 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.
3Q17 3Q16 Change
---- ---- ------
Revenue $4,116 $3,675 12%
Operating profit $1,788 $1,408 27%
Net income $1,285 $1,018 26%
Earnings per share $1.26 $0.98 29%
Cash generation
Amounts are in millions of dollars.
Trailing 12 Months
------------------
3Q17 3Q17 3Q16 Change
---- ---- ---- ------
Cash flow
from
operations $1,722 $4,821 $4,673 3%
Capital
expenditures $186 $574 $585 -2%
Free cash
flow $1,536 $4,247 $4,088 4%
Free cash
flow % of
revenue 29.0% 31.1%
Cash return
Amounts are in millions of dollars.
Trailing 12 Months
------------------
3Q17 3Q17 3Q16 Change
---- ---- ---- ------
Dividends paid $495 $1,992 $1,533 30%
Stock repurchases $650 $2,325 $2,284 2%
Total cash returned $1,145 $4,317 $3,817 13%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except share and per-share amounts)
For Three Months Ended
September 30,
-------------
2017 2016
---- ----
Revenue $4,116 $3,675
Cost of revenue (COR) 1,460 1,391
----- -----
Gross profit 2,656 2,284
Research and development (R&D) 375 353
Selling, general and administrative (SG&A) 412 442
Acquisition charges 80 80
Restructuring charges/other 1 1
--- ---
Operating profit 1,788 1,408
Other income (expense), net (OI&E) 20 (9)
Interest and debt expense 19 18
--- ---
Income before income taxes 1,789 1,381
Provision for income taxes 504 363
--- ---
Net income $1,285 $1,018
====== ======
Diluted earnings per common share $1.26 $.98
===== ====
Average shares outstanding (millions):
Basic 988 1,003
=== =====
Diluted 1,008 1,023
===== =====
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) $542 $418
Discrete tax items (38) (55)
--- ---
Provision for income taxes (effective taxes) $504 $363
==== ====
Annual operating tax rate 31% 30%
Effective tax rate 28% 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 $1,285 $1,018
Income allocated to RSUs (11) (11)
--- ---
Income allocated to common stock for diluted EPS $1,274 $1,007
====== ======
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
September 30,
-------------
2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $1,296 $1,369
Short-term investments 2,148 1,768
Accounts receivable, net of allowances of ($14) and ($14) 1,576 1,447
Raw materials 120 104
Work in process 1,103 949
Finished goods 685 755
--- ---
Inventories 1,908 1,808
----- -----
Prepaid expenses and other current assets 1,063 789
----- ---
Total current assets 7,991 7,181
----- -----
Property, plant and equipment at cost 4,668 4,982
Accumulated depreciation (2,101) (2,437)
------ ------
Property, plant and equipment, net 2,567 2,545
----- -----
Long-term investments 258 233
Goodwill, net 4,362 4,362
Acquisition-related intangibles, net 1,025 1,344
Deferred income taxes 414 355
Capitalized software licenses, net 111 50
Overfunded retirement plans 112 64
Other assets 89 82
--- ---
Total assets $16,929 $16,216
======= =======
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $499 $634
Accounts payable 430 428
Accrued compensation 635 647
Income taxes payable 74 68
Accrued expenses and other liabilities 417 393
--- ---
Total current liabilities 2,055 2,170
----- -----
Long-term debt 3,084 2,977
Underfunded retirement plans 108 201
Deferred income taxes 38 35
Deferred credits and other liabilities 656 547
--- ---
Total liabilities 5,941 5,930
----- -----
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 1,718 1,624
Retained earnings 34,935 32,565
Treasury common stock at cost
Shares: September 30, 2017 - 754,459,144; September 30, 2016 - 739,693,480 (26,901) (25,102)
Accumulated other comprehensive income (loss), net of taxes (AOCI) (505) (542)
---- ----
Total stockholders' equity 10,988 10,286
------ ------
Total liabilities and stockholders' equity $16,929 $16,216
======= =======
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
September 30,
-------------
2017 2016
---- ----
Cash flows from operating activities
Net income $1,285 $1,018
Adjustments to Net income:
Depreciation 133 150
Amortization of acquisition-related intangibles 80 80
Amortization of capitalized software 12 7
Stock compensation 54 56
Deferred income taxes (2) (125)
Increase (decrease) from changes in:
Accounts receivable (106) (98)
Inventories 39 68
Prepaid expenses and other current assets 31 95
Accounts payable and accrued expenses 47 14
Accrued compensation 140 149
Income taxes payable 10 47
Changes in funded status of retirement plans 31 24
Other (32) (20)
--- ---
Cash flows from operating activities 1,722 1,465
----- -----
Cash flows from investing activities
Capital expenditures (186) (139)
Purchases of short-term investments (1,218) (978)
Proceeds from short-term investments 920 515
Other (4) (1)
--- ---
Cash flows from investing activities (488) (603)
---- ----
Cash flows from financing activities
Dividends paid (495) (382)
Stock repurchases (650) (500)
Proceeds from common stock transactions 76 154
Other (9) -
Cash flows from financing activities (1,078) (728)
------ ----
Net change in Cash and cash equivalents 156 134
Cash and cash equivalents at beginning of period 1,140 1,235
----- -----
Cash and cash equivalents at end of period $1,296 $1,369
====== ======
Certain amounts in the prior
period have been recast to
conform to the current
presentation.
Segment results
Amounts are in millions of dollars.
3Q17 3Q16 Change
---- ---- ------
Analog:
Revenue $2,698 $2,323 16%
Operating profit $1,268 $957 32%
Embedded Processing:
Revenue $931 $795 17%
Operating profit $325 $224 45%
Other:
Revenue $487 $557 -13%
Operating profit* $195 $227 -14%
* 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 primarily due to higher revenue and
associated gross profit.
Embedded Processing: (includes Connected Microcontrollers and Processors)
-- Revenue increased in Processors and Connected Microcontrollers.
-- Operating profit increased primarily due to higher revenue and
associated gross profit.
Other: (includes DLP(®) products, calculators and custom ASIC products)
-- Revenue decreased by $70 million, and operating profit declined by $32
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
September 30,
-------------
2017 2016 Change
---- ---- ------
Cash flow from operations (GAAP) $4,821 $4,673 3%
Capital expenditures (574) (585)
---- ----
Free cash flow (non-GAAP) $4,247 $4,088 4%
====== ======
Revenue $14,625 $13,145
======= =======
Cash flow from operations as a percent of revenue (GAAP) 33.0% 35.5%
Free cash flow as a percent of revenue (non-GAAP) 29.0% 31.1%
This release also includes references to an annual operating tax rate, a non-GAAP term the company uses to describe the estimated annual effective tax rate, a GAAP measure that by definition does not include discrete tax items. The company believes 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.
TI trademarks:
DLP
Other trademarks are the property of their respective owners.
TXN-G
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SOURCE Texas Instruments Incorporated
