•

“Revenue increased 7 percent from the same quarter a year ago, as demand for our products remained strong in the automotive market. The improvement we saw in the third quarter for the industrial market continued. Demand in the personal electronics market was down slightly from a year ago.

•

“In our core businesses, Analog revenue grew 10 percent and Embedded Processing grew 6 percent from the same quarter a year ago. Operating margin increased in both businesses.

•

“Gross margin of 62.5 percent in the fourth quarter 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 year again underscored the strength of our business model. Free cash flow for the year was up 6 percent from a year ago to $4.1 billion, and represents 30.5 percent of revenue, up from 29.6 percent a year ago.

•

“We have returned $3.8 billion to owners in 2016 through stock repurchases and dividends, consistent with our strategy to return all of our free cash flow plus proceeds from exercises of equity compensation minus net debt retirement. Over the last 12 months, our dividends represented 40 percent of free cash flow, underscoring their sustainability.

•

“Our balance sheet remains strong with $3.5 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 126 days.

•

“TI’s first-quarter outlook is for revenue in the range of $3.17 billion to $3.43 billion and earnings per share between 78 and 88 cents, which includes a 4-cent estimated tax benefit related to the new accounting standard for stock compensation. For 2017, TI’s annual effective tax rate is expected to be about 30 percent.”

4Q16

4Q15

Change

Revenue

$

3,414

$

3,189

7%

Operating profit

$

1,319

$

1,142

15%

Net income

$

1,047

$

836

25%

Earnings per share

$

1.02

$

0.80

28%

Trailing 12 Months

4Q16

4Q16

4Q15

Change

Cash flow from operations

$

1,387

$

4,614

$

4,397

5%

Capital expenditures

$

110

$

531

$

551

-4%

Free cash flow

$

1,277

$

4,083

$

3,846

6%

Free cash flow % of revenue

30.5%

29.6%

Trailing 12 Months

4Q16

4Q16

4Q15

Change

Dividends paid

$

499

$

1,646

$

1,444

14%

Stock repurchases

$

475

$

2,132

$

2,741

-22%

Total cash returned

$

974

$

3,778

$

4,185

-10%

For Three Months Ended

For Years Ended

December 31,

December 31,

2016

2015

2016

2015

Revenue

$

3,414

$

3,189

$

13,370

$

13,000

Cost of revenue (COR)

1,281

1,323

5,130

5,440

Gross profit

2,133

1,866

8,240

7,560

Research and development (R&D)

343

306

1,370

1,280

Selling, general and administrative (SG&A)

411

405

1,767

1,748

Acquisition charges

80

81

319

329

Restructuring charges/other

(20)

(68)

(15)

(71)

Operating profit

1,319

1,142

4,799

4,274

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

197

19

211

32

Interest and debt expense

19

22

80

90

Income before income taxes

1,497

1,139

4,930

4,216

Provision for income taxes

450

303

1,335

1,230

Net income

$

1,047

$

836

$

3,595

$

2,986

Diluted earnings per common share

$

1.02

$

.80

$

3.48

$

2.82

Average diluted shares outstanding (millions)

1,018

1,027

1,021

1,043

Cash dividends declared per common share

$

.50

$

.38

$

1.64

$

1.40

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

$

1,047

$

836

$

3,595

$

2,986

Income allocated to RSUs

(13)

(12)

(44)

(42)

Income allocated to common stock for diluted EPS

$

1,034

$

824

$

3,551

$

2,944

December 31,

2016

2015

Assets

Current assets:

Cash and cash equivalents

$

1,154

$

1,000

Short-term investments

2,336

2,218

Accounts receivable, net of allowances of ($17) and ($7)

1,267

1,165

Raw materials

102

109

Work in process

954

846

Finished goods

734

736

Inventories

1,790

1,691

Prepaid expenses and other current assets

910

1,000

Total current assets

7,457

7,074

Property, plant and equipment at cost

4,923

5,465

Accumulated depreciation

(2,411

)

(2,869

)

Property, plant and equipment, net

2,512

2,596

Long-term investments

235

221

Goodwill, net

4,362

4,362

Acquisition-related intangibles, net

1,264

1,583

Deferred income taxes

374

201

Capitalized software licenses, net

52

46

Overfunded retirement plans

96

85

Other assets

79

62

Total assets

$

16,431

$

16,230

Liabilities and stockholders’ equity

Current liabilities:

Current portion of long-term debt

$

631

$

1,000

Accounts payable

396

386

Accrued compensation

710

664

Income taxes payable

83

95

Accrued expenses and other liabilities

444

410

Total current liabilities

2,264

2,555

Long-term debt

2,978

3,120

Underfunded retirement plans

129

196

Deferred income taxes

33

37

Deferred credits and other liabilities

554

376

Total liabilities

5,958

6,284

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

1,674

1,629

Retained earnings

33,107

31,176

Treasury common stock at cost

Shares: 2016 – 744,831,978; 2015 – 729,547,527

(25,523

)

(24,068

)

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

(526

)

(532

)

Total stockholders’ equity

10,473

9,946

Total liabilities and stockholders’ equity

$

16,431

$

16,230

For Three Months Ended

For Years Ended

December 31,

December 31,

2016

2015

2016

2015

Cash flows from operating activities

Net income

$

1,047

$

836

$

3,595

$

2,986

Adjustments to Net income:

Depreciation

139

172

605

766

Amortization of acquisition-related intangibles

80

79

319

319

Amortization of capitalized software

8

10

31

48

Stock-based compensation

48

58

252

286

Gains on sales of assets

(40)

(82)

(40)

(85)

Deferred income taxes

(42)

51

(202)

(55)

Increase (decrease) from changes in:

Accounts receivable

166

318

(108)

77

Inventories

18

80

(99)

93

Prepaid expenses and other current assets

(211)

5

(81)

94

Accounts payable and accrued expenses

59

3

72

(142)

Accrued compensation

62

44

36

7

Income taxes payable

180

(10)

333

11

Changes in funded status of retirement plans

(129)

(88)

(73)

(23)

Other

2

(30)

(26)

15

Cash flows from operating activities

1,387

1,446

4,614

4,397

Cash flows from investing activities

Capital expenditures

(110)

(164)

(531)

(551)

Proceeds from asset sales

—

100

—

110

Purchases of short-term investments

(1,332)

(1,054)

(3,503)

(2,767)

Proceeds from short-term investments

765

437

3,390

2,892

Other

(8)

6

(6)

14

Cash flows from investing activities

(685)

(675)

(650)

(302)

Cash flows from financing activities

Proceeds from issuance of debt

—

—

499

498

Repayment of debt

—

—

(1,000)

(1,000)

Dividends paid

(499)

(386)

(1,646)

(1,444)

Stock repurchases

(475)

(627)

(2,132)

(2,741)

Proceeds from common stock transactions

57

109

472

396

Other

—

—

(3)

(3)

Cash flows from financing activities

(917)

(904)

(3,810)

(4,294)

Net change in Cash and cash equivalents

(215)

(133)

154

(199)

Cash and cash equivalents at beginning of period

1,369

1,133

1,000

1,199

Cash and cash equivalents at end of period

$

1,154

$

1,000

$

1,154

$

1,000

4Q16

4Q15

Change

Analog:

Revenue

$

2,290

$

2,073

10%

Operating profit

$

981

$

787

25%

Embedded Processing:

Revenue

$

744

$

700

6%

Operating profit

$

210

$

164

28%

Other:

Revenue

$

380

$

416

-9%

Operating profit*

$

128

$

191

-33%

•

Revenue increased due to Power Management, High Performance Analog and Silicon Valley Analog. High Volume Analog & Logic was about even.

•

Operating profit increased primarily due to higher revenue and associated gross profit.

•

Revenue increased due to Processors and Microcontrollers. Connectivity also grew.

•

Operating profit increased due to higher gross profit.

•

Revenue declined due to royalties and custom ASIC products. DLP products and calculators were about even.

•

Operating profit decreased due to gains on sales of assets in the year-ago quarter.    

2016

2015

Change

Analog:

Revenue

$

8,536

$

8,339

2%

Operating profit

$

3,380

$

3,048

11%

Embedded Processing:

Revenue

$

3,023

$

2,787

8%

Operating profit

$

801

$

596

34%

Other:

Revenue

$

1,811

$

1,874

-3%

Operating profit*

$

618

$

630

-2%

•

Revenue increased due to Silicon Valley Analog and High Performance Analog. Power Management also grew, while High Volume Analog & Logic declined.  

•

Operating profit increased due to higher gross profit, which benefited from lower manufacturing costs.

•

Revenue increased due to growth in all three product lines, led by Processors.

•

Operating profit increased primarily due to higher revenue and associated gross profit.

•

Revenue declined due to royalties, custom ASIC products and calculators. This was partially offset by growth in DLP products.

•

Operating profit decreased $12 million.    

For Years Ended

December 31,

2016

2015

Change

Cash flow from operations (GAAP)

$

4,614

$

4,397

5%

Capital expenditures

(531)

(551)

Free cash flow (non-GAAP)

$

4,083

$

3,846

6%

Revenue

$

13,370

$

13,000

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

34.5%

33.8%

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

30.5%

29.6%

4Q16 (a)

3Q16

2Q16

1Q16

Reported

Reported

Recast

Reported

Recast

Reported

Recast

Income statement data:

Provision for income taxes

$

450

$

413

$

363

$

323

$

283

$

282

$

239

Net income

1,047

968

1,018

779

819

668

711

Average diluted shares outstanding, in millions

1,018

1,017

1,023

1,016

1,020

1,018

1,022

Basic EPS

$

1.04

$

0.95

$

1.00

$

0.77

$

0.81

$

0.65

$

0.70

Diluted EPS

$

1.02

$

0.94

$

0.98

$

0.76

$

0.79

$

0.65

$

0.69

Cash flow data:

Cash flows from operating activities (GAAP)

1,387

1,413

1,465

1,069

1,109

547

653

Capital expenditures

(110)

(139)

(139)

(158)

(158)

(124)

(124)

Free cash flow (non-GAAP) (c)

1,277

1,274

1,326

911

951

423

529

Cash flows from financing activities

(917)

(676)

(728)

(1,180)

(1,220)

(839)

(945)

2016 (b)

2015

Total

Reported

Recast

Income statement data:

Provision for income taxes

$

1,335

$

1,230

*

Net income

3,595

2,986

*

Average diluted shares outstanding, in millions

1,021

1,043

*

Basic EPS

$

3.54

$

2.86

*

Diluted EPS

$

3.48

$

2.82

*

Cash flow data:

Cash flows from operating activities (GAAP)

4,614

4,268

4,397

Capital expenditures

(531)

(551)

(551)

Free cash flow (non-GAAP) (c)

4,083

3,717

3,846

Cash flows from financing activities

(3,810)

(4,165)

(4,294)

•

Market demand for semiconductors, particularly in TI’s end markets;

•

TI’s ability to compete in products and prices in an intensely competitive industry;

•

Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments;

•

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 maintain or improve profit margins, including its ability to utilize its manufacturing facilities at sufficient levels to cover its fixed operating costs, in an intensely competitive and cyclical industry;

•

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, its customers or its suppliers operate, including security risks, 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, its customers or its suppliers operate;

•

Breaches of TI’s information technology systems or those of its customers or suppliers;

•

Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;

•

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;

•

TI’s ability to maintain and enforce a strong intellectual property portfolio and obtain needed licenses from third parties, expiration of license agreements between TI and its patent licensees, and market conditions reducing royalty payments to TI;

•

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 its products or operate its 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 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 and the ability to realize deferred tax assets;

•

Financial difficulties of distributors or their promotion of competing product lines to TI’s detriment;

•

A loss suffered by a customer or distributor of TI with respect to TI-consigned inventory;

•

Instability in the global credit and financial markets that affects TI’s ability to fund its daily operations, invest in the business, make strategic acquisitions, or make principal and interest payments on its debt;

•

Increases in health care and pension benefit costs;

•

TI’s ability to recruit and retain skilled personnel;

•

TI’s ability to successfully integrate and realize opportunities for growth from acquisitions, and its ability to realize its expectations regarding the amount and timing of restructuring charges and associated cost savings; and

•

Impairments of TI’s non-financial assets.