•

“Revenue and earnings per share for the quarter were slightly above our expected range. Compared with a year ago, demand for our products continued to be strong in the automotive market and improved in the industrial market. Demand in the personal electronics market was about even with a year ago.  

•

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

•

“Gross margin of 62.0 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 $4.5 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 8 percent from a year ago to $3.9 billion, and represents 29.5 percent of revenue, up from 27.5 percent a year ago.

•

“We have returned $3.8 billion to shareholders in the past 12 months through stock repurchases and dividends, consistent with our strategy to return to shareholders all of our free cash flow plus proceeds from exercises of equity compensation minus net debt retirement.

•

“Our balance sheet remains strong with $3.1 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 117 days.

•

“TI’s fourth-quarter outlook is for revenue in the range of $3.17 billion to $3.43 billion, and earnings per share between 76 and 86 cents. For 2016, TI’s annual effective tax rate is expected to be about 30 percent, unchanged from previous guidance.”

3Q16

3Q15

Change

Revenue

$

3,675

$

3,429

7%

Operating profit

$

1,395

$

1,164

20%

Net income

$

968

$

798

21%

Earnings per share

$

0.94

$

0.76

24%

Trailing 12 Months

3Q16

3Q16

3Q15

Change

Cash flow from operations

$

1,413

$

4,459

$

4,110

8

%

Capital expenditures

$

139

$

585

$

512

14

%

Free cash flow

$

1,274

$

3,874

$

3,598

8

%

Free cash flow % of revenue

29.5

%

27.5

%

Trailing 12 Months

3Q16

3Q16

3Q15

Change

Dividends paid

$

382

$

1,533

$

1,414

8

%

Stock repurchases

$

500

$

2,284

$

2,812

-19

%

Total cash returned

$

882

$

3,817

$

4,226

-10

%

For Three Months Ended

September 30,

2016

2015

Revenue

$

3,675

$

3,429

Cost of revenue (COR)

1,395

1,432

Gross profit

2,280

1,997

Research and development (R&D)

356

316

Selling, general and administrative (SG&A)

448

434

Acquisition charges

80

83

Restructuring charges/other

1

—

Operating profit

1,395

1,164

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

4

6

Interest and debt expense

18

22

Income before income taxes

1,381

1,148

Provision for income taxes

413

350

Net income

$

968

$

798

Diluted earnings per common share

$

.94

$

.76

Average diluted shares outstanding (millions)

1,017

1,035

Cash dividends declared per common share

$

.38

$

.34

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

$

968

$

798

Income allocated to RSUs

(11

)

(11

)

Income allocated to common stock for diluted EPS

$

957

$

787

September 30,

2016

2015

Assets

Current assets:

Cash and cash equivalents

$

1,369

$

1,133

Short-term investments

1,768

1,602

Accounts receivable, net of allowances of ($14) and ($16)

1,447

1,481

Raw materials

104

108

Work in process

949

913

Finished goods

755

750

Inventories

1,808

1,771

Prepaid expenses and other current assets

789

945

Total current assets

7,181

6,932

Property, plant and equipment at cost

4,982

5,742

Accumulated depreciation

(2,437

)

(3,113

)

Property, plant and equipment, net

2,545

2,629

Long-term investments

233

216

Goodwill, net

4,362

4,362

Acquisition-related intangibles, net

1,344

1,662

Deferred income taxes

355

247

Capitalized software licenses, net

50

54

Overfunded retirement plans

64

76

Other assets

82

81

Total assets

$

16,216

$

16,259

Liabilities and stockholders’ equity

Current liabilities:

Current portion of long-term debt

$

634

$

1,000

Accounts payable

428

367

Accrued compensation

647

615

Income taxes payable

68

84

Accrued expenses and other liabilities

393

431

Total current liabilities

2,170

2,497

Long-term debt

2,977

3,121

Underfunded retirement plans

201

247

Deferred income taxes

35

41

Deferred credits and other liabilities

547

383

Total liabilities

5,930

6,289

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

1,757

1,562

Retained earnings

32,432

30,731

Treasury common stock at cost Shares: September 30, 2016 – 739,693,480; September 30, 2015 – 721,186,352

(25,102

)

(23,551

)

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

(542

)

(513

)

Total stockholders’ equity

10,286

9,970

Total liabilities and stockholders’ equity

$

16,216

$

16,259

For Three Months Ended

September 30,

2016

2015

Cash flows from operating activities

Net income

$

968

$

798

Adjustments to Net income:

Depreciation

150

193

Amortization of acquisition-related intangibles

80

80

Amortization of capitalized software

7

12

Stock-based compensation

56

66

Deferred income taxes

(125

)

(50

)

Increase (decrease) from changes in:

Accounts receivable

(98

)

(47

)

Inventories

68

114

Prepaid expenses and other current assets

95

40

Accounts payable and accrued expenses

9

(48

)

Accrued compensation

149

132

Income taxes payable

47

99

Changes in funded status of retirement plans

24

24

Other

(17

)

(4

)

Cash flows from operating activities

1,413

1,409

Cash flows from investing activities

Capital expenditures

(139

)

(139

)

Purchases of short-term investments

(978

)

(459

)

Proceeds from short-term investments

515

980

Other

(1

)

7

Cash flows from investing activities

(603

)

389

Cash flows from financing activities

Repayment of debt

—

(750

)

Dividends paid

(382

)

(348

)

Stock repurchases

(500

)

(790

)

Proceeds from common stock transactions

159

35

Excess tax benefit from share-based payments

47

4

Cash flows from financing activities

(676

)

(1,849

)

Net change in Cash and cash equivalents

134

(51

)

Cash and cash equivalents at beginning of period

1,235

1,184

Cash and cash equivalents at end of period

$

1,369

$

1,133

3Q16

3Q15

Change

Analog:

Revenue

$

2,323

$

2,182

6

%

Operating profit

$

949

$

812

17

%

Embedded Processing:

Revenue

$

795

$

725

10

%

Operating profit

$

220

$

174

26

%

Other:

Revenue

$

557

$

522

7

%

Operating profit*

$

226

$

178

27

%

•

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

•

Operating profit increased primarily due to higher revenue and lower manufacturing costs.

•

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

•

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

•

Revenue increased primarily due to calculators and DLP products, partially offset by a decrease in royalties and custom ASIC products.

•

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

For 12 Months Ended

September 30,

2016

2015

Change

Cash flow from operations (GAAP)

$

4,459

$

4,110

8

%

Capital expenditures

(585

)

(512

)

Free cash flow (non-GAAP)

$

3,874

$

3,598

8

%

Revenue

$

13,145

$

13,080

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

33.9

%

31.4

%

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

29.5

%

27.5

%

•

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.