•

“Revenue increased 10 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 11 percent and Embedded Processing grew 20 percent from the same quarter a year ago. Operating margin increased in both businesses.

•

“Gross margin of 65.1 percent for the 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 $5.36 billion for the year again underscored the strength of our business model. Free cash flow for the year was up 14 percent from a year ago to $4.67 billion and represents 31.2 percent of revenue, up from 30.5 percent a year ago.

•

“We have returned $4.66 billion to owners in 2017 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, underscoring their sustainability.

•

“TI’s first-quarter outlook is for revenue in the range of $3.49 billion to $3.79 billion, and earnings per share between $1.01 and $1.17, which includes an estimated $30 million discrete tax benefit.

•

“Notably, the recently passed tax reform act will reduce our annual operating tax rate from 31 percent in 2017 to an ongoing rate of 18 percent starting in 2019, comprehending the benefit of exports and having manufacturing, R&D and intellectual property in the United States. In 2018, our annual operating tax rate will be 23 percent, 5 percentage points higher, due to transitional expense associated with the reduced U.S. tax rate in 2018.”

4Q17

4Q16

Change

Revenue

$

3,750

$

3,414

10

%

Operating profit

$

1,563

$

1,332

17

%

Net income

$

344

$

1,047

-67

%

Earnings per share

$

0.34

$

1.02

-67

%

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 2

Trailing 12 Months

4Q17

4Q17

4Q16

Change

Cash flow from operations

$

1,929

$

5,363

$

4,614

16

%

Capital expenditures

$

231

$

695

$

531

31

%

Free cash flow

$

1,698

$

4,668

$

4,083

14

%

Free cash flow % of revenue

31.2

%

30.5

%

Trailing 12 Months

4Q17

4Q17

4Q16

Change

Dividends paid

$

611

$

2,104

$

1,646

28

%

Stock repurchases

$

706

$

2,556

$

2,132

20

%

Total cash returned

$

1,317

$

4,660

$

3,778

23

%

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 3

For Three Months Ended

For Years Ended

December 31,

December 31,

2017

2016

2017

2016

Revenue

$

3,750

$

3,414

$

14,961

$

13,370

Cost of revenue (COR)

1,310

1,277

5,347

5,113

Gross profit

2,440

2,137

9,614

8,257

Research and development (R&D)

386

340

1,508

1,356

Selling, general and administrative (SG&A)

409

405

1,694

1,742

Acquisition charges

79

80

318

319

Restructuring charges/other

3

(20)

11

(15)

Operating profit

1,563

1,332

6,083

4,855

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

8

184

75

155

Interest and debt expense

21

19

78

80

Income before income taxes

1,550

1,497

6,080

4,930

Provision for income taxes

1,206

450

2,398

1,335

Net income

$

344

$

1,047

$

3,682

$

3,595

Diluted earnings per common share

$

.34

$

1.02

$

3.61

$

3.48

Average shares outstanding (millions):

Basic

985

998

991

1,003

Diluted

1,007

1,018

1,012

1,021

Cash dividends declared per common share

$

.62

$

.50

$

2.12

$

1.64

Certain amounts in the prior periods have been adjusted to reflect 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

Provision for income taxes is based on the following:

Operating taxes (calculated using the estimated annual effective tax rate)

$

476

$

465

$

1,858

$

1,489

Discrete tax items

730

(15

)

540

(154

)

Provision for income taxes (effective taxes)

$

1,206

$

450

$

2,398

$

1,335

Annual operating tax rate

31

%

31

%

31

%

30

%

Effective tax rate

78

%

30

%

39

%

27

%

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

$

344

$

1,047

$

3,682

$

3,595

Income allocated to RSUs

(3

)

(13

)

(33

)

(44

)

Income allocated to common stock for diluted EPS

$

341

$

1,034

$

3,649

$

3,551

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 4

December 31,

2017

2016

Assets

Current assets:

Cash and cash equivalents

$

1,656

$

1,154

Short-term investments

2,813

2,336

Accounts receivable, net of allowances of ($8) and ($17)

1,278

1,267

Raw materials

126

102

Work in process

1,089

954

Finished goods

742

734

Inventories

1,957

1,790

Prepaid expenses and other current assets

1,030

910

Total current assets

8,734

7,457

Property, plant and equipment at cost

4,789

4,923

Accumulated depreciation

(2,125

)

(2,411

)

Property, plant and equipment, net

2,664

2,512

Long-term investments

268

235

Goodwill

4,362

4,362

Acquisition-related intangibles

946

1,264

Deferred tax assets

264

374

Capitalized software licenses

110

52

Overfunded retirement plans

208

96

Other assets

86

79

Total assets

$

17,642

$

16,431

Liabilities and stockholders’ equity

Current liabilities:

Current portion of long-term debt

$

500

$

631

Accounts payable

466

396

Accrued compensation

722

710

Income taxes payable

128

83

Accrued expenses and other liabilities

442

444

Total current liabilities

2,258

2,264

Long-term debt

3,577

2,978

Underfunded retirement plans

89

129

Deferred tax liabilities

78

33

Deferred credits and other liabilities

1,303

554

Total liabilities

7,305

5,958

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

1,776

1,674

Retained earnings

34,662

33,107

Treasury common stock at cost

Shares: 2017 – 757,657,217; 2016 – 744,831,978

(27,458

)

(25,523

)

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

(384

)

(526

)

Total stockholders’ equity

10,337

10,473

Total liabilities and stockholders’ equity

$

17,642

$

16,431

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 5

For Three Months Ended

For Years Ended

December 31,

December 31,

2017

2016

2017

2016

Cash flows from operating activities

Net income  

$

344

$

1,047

$

3,682

$

3,595

Adjustments to Net income:

Depreciation  

133

139

539

605

Amortization of acquisition-related intangibles  

79

80

318

319

Amortization of capitalized software  

12

8

47

31

Stock-based compensation  

45

48

242

252

Gains on sales of assets  

—

(40

)

—

(40

)

Deferred taxes  

159

(42

)

112

(202

)

Increase (decrease) from changes in:

Accounts receivable  

299

166

(7

)

(108

)

Inventories  

(49

)

18

(167

)

(99

)

Prepaid expenses and other current assets  

33

(211

)

76

(81

)

Accounts payable and accrued expenses  

70

59

51

72

Accrued compensation  

82

62

(3

)

36

Income taxes payable  

694

180

468

333

Changes in funded status of retirement plans  

(15

)

(129

)

21

(73

)

Other  

43

2

(16

)

(26

)

Cash flows from operating activities  

1,929

1,387

5,363

4,614

Cash flows from investing activities

Capital expenditures  

(231

)

(110

)

(695

)

(531

)

Proceeds from asset sales  

—

—

40

—

Purchases of short-term investments  

(1,450

)

(1,332

)

(4,555

)

(3,503

)

Proceeds from short-term investments  

790

765

4,095

3,390

Other  

(7

)

(8

)

(12

)

(6

)

Cash flows from investing activities  

(898

)

(685

)

(1,127

)

(650

)

Cash flows from financing activities

Proceeds from issuance of debt  

494

—

1,099

499

Repayment of debt  

—

—

(625

)

(1,000

)

Dividends paid  

(611

)

(499

)

(2,104

)

(1,646

)

Stock repurchases  

(706

)

(475

)

(2,556

)

(2,132

)

Proceeds from common stock transactions  

162

57

483

472

Other  

(10

)

—

(31

)

(3

)

Cash flows from financing activities  

(671

)

(917

)

(3,734

)

(3,810

)

Net change in Cash and cash equivalents  

360

(215

)

502

154

Cash and cash equivalents at beginning of period  

1,296

1,369

1,154

1,000

Cash and cash equivalents at end of period  

$

1,656

$

1,154

$

1,656

$

1,154

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 6

4Q17

4Q16

Change

Analog:

Revenue

$

2,535

$

2,290

11

%

Operating profit

$

1,188

$

990

20

%

Embedded Processing:

Revenue

$

896

$

744

20

%

Operating profit

$

307

$

214

43

%

Other:

Revenue

$

319

$

380

-16

%

Operating profit*

$

68

$

128

-47

%

•

Revenue increased due to Power and Signal Chain. High Volume declined.

•

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

•

Revenue increased in both product lines.

•

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

•

Revenue decreased $61 million, and operating profit declined $60 million.  

2017

2016

Change

Analog:

Revenue

$

9,900

$

8,536

16

%

Operating profit

$

4,468

$

3,416

31

%

Embedded Processing:

Revenue

$

3,498

$

3,023

16

%

Operating profit

$

1,143

$

817

40

%

Other:

Revenue

$

1,563

$

1,811

-14

%

Operating profit*

$

472

$

622

-24

%

•

Revenue increased due to Power and Signal Chain. High Volume also grew.

•

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

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 7

•

Revenue increased due to growth in both product lines – Processors and Connected Microcontrollers.

•

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

•

Revenue declined $248 million primarily due to custom ASIC products and the move of royalties from revenue to OI&E, which began in the first quarter of 2017.

•

Operating profit decreased $150 million.

For Years Ended

December 31,

2017

2016

Change

Cash flow from operations (GAAP)

$

5,363

$

4,614

16

%

Capital expenditures

(695

)

(531

)

Free cash flow (non-GAAP)

$

4,668

$

4,083

14

%

Revenue

$

14,961

$

13,370

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

35.8

%

34.5

%

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

31.2

%

30.5

%

TI reports 4Q17 and 2017 financial results and shareholder returns

Page 8

•

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 reports 4Q17 and 2017 financial results and shareholder returns

Page 9

•

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.