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- TI Revenue Up 7% Sequentially
- EPS of $0.42, Up 20% Sequentially
- Record Gross Margin as Company Progresses Toward Higher Profitability
Goals
Conference Call on TI Web Site at 4:30 p.m. Central Time Today
http://www.ti.com
Except as noted, financial results are for continuing operations. The sale
of TI's former Sensors & Controls business was completed on April 27, 2006,
and that business is reported as a discontinued operation.
DALLAS, July 23 /PRNewswire-FirstCall/ -- Texas Instruments
Incorporated (TI) (NYSE: TXN) today reported revenue of $3.42 billion for
the second quarter of 2007. Revenue increased 7 percent compared with the
prior quarter as demand for the company's semiconductor products began to
rebound following an inventory correction in the semiconductor market.
Growth also benefited from a seasonal increase in demand for the company's
graphing calculator products. Revenue decreased 7 percent compared with the
year-ago quarter due to lower demand across a broad base of products.
Earnings per share (EPS) were $0.42. This was a $0.07, or 20 percent,
increase from the prior quarter and a $0.05 decrease from the year-ago
quarter. In the year-ago quarter, financial results included EPS benefits
of $0.03 from a sales tax refund and $0.02 associated with a favorable
royalty settlement. The royalty settlement also contributed $70 million to
revenue in the year-ago quarter.
"Our attention to customers and growing focus on analog continue to
help us deliver stronger financial results," said Rich Templeton, president
and chief executive officer. "Moreover, we see even greater opportunities
ahead as the market regains momentum. With TI's broad product portfolio,
spanning both analog and digital signal processing technologies, we are in
a unique position to support customers working on hundreds of electronics
applications across the globe. We also see potential to expand our margins,
and we recently raised our profitability goals to 55 percent gross margin
and 30 percent operating margin. We expect to meet these goals within the
next few years."
Gross Profit
Gross profit was $1.78 billion, a record 52.1 percent of revenue. This
was up $147 million from the prior quarter due to higher revenue. It was
down $123 million from the year-ago quarter primarily due to the
combination of the royalty settlement and sales tax refund in the year-ago
quarter, as well as lower revenue.
Operating Expenses
Research and development (R&D) expense was $551 million. This was about
even with the prior quarter. R&D expense increased $15 million from the
year-ago quarter due to the favorable impact of the sales tax refund a year
ago.
Selling, general and administrative (SG&A) expense was $424 million.
This was an increase of $19 million from the prior quarter primarily due to
higher compensation-related expenses, as well as seasonally higher
marketing expenses for graphing calculators. SG&A expense was about even
with the year-ago quarter.
Operating Profit
Operating profit was $809 million, or 23.6 percent of revenue. This was
an increase of $129 million from the prior quarter due to higher gross
profit. It was a decrease of $144 million from the year-ago quarter
primarily due to the combination of the royalty settlement and sales tax
refund in the year-ago quarter.
Other Income (Expense) Net (OI&E)
OI&E was $56 million. This was an increase of $16 million from the
prior quarter primarily due to the impairment of an investment in the prior
quarter. OI&E declined $32 million from a year ago primarily due to a
benefit associated with the sales tax refund in the year-ago quarter, as
well as lower interest income.
Income
Income from continuing operations was $614 million, or $0.42 per share.
Orders
TI orders were $3.45 billion. This was an increase of $247 million, or
8 percent, from the prior quarter due to higher demand for semiconductor
products and seasonally stronger demand for calculators. Orders declined
$455 million from the year-ago quarter due to lower demand for
semiconductor products that more than offset a $50 million increase in
demand for calculators.
Cash
Cash flow from operations was $898 million. This was an increase of
$344 million from the prior quarter primarily due to a reduced need for
cash to meet working capital requirements, such as the payment of annual
profit sharing and bonus that was made in the prior quarter. Higher net
income also contributed to the increase in cash flow from operations. Total
cash (cash and cash equivalents plus short-term investments) was $3.58
billion at the end of the second quarter. This was an increase of $245
million from the end of the prior quarter and a decrease of $2.09 billion
from the year-ago quarter, which included $2.98 billion from the sale of
the company's former Sensors & Controls business in that quarter. In the
second quarter of 2007, the company used $742 million to repurchase 21
million shares of common stock, paid $115 million in dividends to
shareholders and retired $43 million of debt on its maturity date. Since
the end of the year-ago quarter, the company has used $4.42 billion to
repurchase 143 million shares of common stock and paid $278 million in
dividends.
Capital Spending and Depreciation
Capital expenditures were $174 million. This was a decrease of $5
million from the prior quarter and a decrease of $200 million from the
year-ago quarter due to lower expenditures for semiconductor manufacturing
equipment. TI's capital expenditures in the quarter were primarily for
equipment used in the manufacture of semiconductors, especially assembly
and test equipment.
Depreciation was $256 million. This was an increase of $4 million from
the prior quarter and a decrease of $11 million from the year-ago quarter.
Accounts Receivable and Inventories
Accounts receivable were $1.90 billion at the end of the second
quarter. This was an increase of $141 million from the prior quarter due to
higher revenue and a decrease of $32 million from the year-ago quarter due
to lower revenue. Days sales outstanding were 50 at the end of the second
quarter compared with 50 at the end of the prior quarter and 47 at the end
of the year-ago quarter.
Inventory was $1.42 billion at the end of the second quarter. This was
an increase of $15 million from the prior quarter as the company built
inventory of graphing calculators in preparation for the back-to-school
sales season. Compared with a year ago, inventory increased $89 million
primarily due to replenishment of high-performance analog product inventory
from less-than- desirable levels a year ago. Days of inventory at the end
of the second quarter were 78 compared with 82 at the end of the prior
quarter and 67 a year ago.
Outlook
TI intends to provide a mid-quarter update to its financial outlook on
September 11, 2007, by issuing a press release and holding a conference
call. Both will be available on the company's web site.
For the third quarter of 2007, TI expects revenue to be in the
following ranges:
-- Total TI, $3.49 billion to $3.79 billion;
-- Semiconductor, $3.29 billion to $3.57 billion; and
-- Education Technology, $200 million to $220 million.
TI expects earnings per share to be in the range of $0.46 to $0.52.
This estimate assumes that the sale of the company's broadband DSL
customer-premises equipment semiconductor product line will close at the
end of July. The EPS estimate does not include the expected gain on the
sale.
In 2007, TI still expects: an annual effective tax rate of about 28
percent, R&D expense of about $2.2 billion, capital expenditures of about
$0.9 billion and depreciation of about $1.0 billion.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except share and per-share amounts)
For Three Months Ended
June 30, Mar. 31, June 30,
2007 2007 2006
Net revenue $3,424 $3,191 $3,697
Cost of revenue (COR) 1,640 1,554 1,790
Gross profit 1,784 1,637 1,907
Research and development (R&D) 551 552 536
Selling, general and administrative (SG&A) 424 405 418
Total operating costs and expenses 2,615 2,511 2,744
Profit from operations 809 680 953
Other income (expense) net 56 39 86
Income from continuing operations
before income taxes 865 719 1,039
Provision for income taxes 251 203 300
Income from continuing operations 614 516 739
Income (loss) from discontinued
operations, net of income taxes (4) -- 1,648
Net income $ 610 $ 516 $2,387
Basic earnings per common share:
Income from continuing operations $ .43 $ .36 $ .48
Net income $ .42 $ .36 $ 1.54
Diluted earnings per common share:
Income from continuing operations $ .42 $ .35 $ .47
Net income $ .42 $ .35 $ 1.50
Average shares outstanding (millions):
Basic 1,437 1,442 1,553
Diluted 1,469 1,470 1,586
Cash dividends declared per share of
common stock $ .08 $ .04 $ .03
Percentage of revenue:
Gross profit 52.1% 51.3% 51.6%
R&D 16.1% 17.3% 14.5%
SG&A 12.4% 12.7% 11.3%
Operating profit 23.6% 21.3% 25.8%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
June 30, Mar. 31, June 30,
2007 2007 2006
Assets
Current assets:
Cash and cash equivalents $ 1,266 $ 965 $ 1,678
Short-term investments 2,315 2,371 3,992
Accounts receivable, net of
allowances of ($27), ($25) and ($28) 1,897 1,756 1,929
Raw materials 106 114 108
Work in process 876 879 818
Finished goods 442 416 409
Inventories 1,424 1,409 1,335
Deferred income taxes 1,072 1,071 632
Prepaid expenses and other
current assets 246 257 215
Assets of discontinued operations -- 4 11
Total current assets 8,220 7,833 9,792
Property, plant and equipment at cost 7,657 7,715 8,406
Less accumulated depreciation (3,859) (3,835) (4,422)
Property, plant and equipment, net 3,798 3,880 3,984
Equity and other long-term investments 254 250 253
Goodwill 792 792 792
Acquisition-related intangibles 117 131 117
Deferred income taxes 405 436 428
Capitalized software licenses, net 259 280 197
Overfunded retirement plans 79 54 --
Prepaid retirement costs -- -- 219
Other assets 96 94 146
Total assets $14,020 $13,750 $15,928
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion of
long-term debt $ -- $ 43 $ 43
Accounts payable 622 550 788
Accrued expenses and other liabilities 1,048 877 994
Income taxes payable 187 286 870
Accrued profit sharing and retirement 98 51 77
Liabilities of discontinued operations -- -- 11
Total current liabilities 1,955 1,807 2,783
Underfunded retirement plans 115 197 --
Accrued retirement costs -- -- 103
Deferred income taxes 20 10 15
Deferred credits and other liabilities 436 453 239
Total liabilities 2,526 2,467 3,140
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: June 30, 2007 --
1,739,467,307; March 31, 2007 --
1,739,211,844; June 30, 2006 --
1,739,086,194 1,739 1,739 1,739
Paid-in capital 761 822 779
Retained earnings 18,511 18,017 16,271
Less treasury common stock at cost:
Shares: June 30, 2007 -- 310,382,046;
March 31, 2007 -- 305,502,566;
June 30, 2006 -- 206,501,103 (9,233) (8,940) (5,911)
Accumulated other comprehensive
income (loss), net of tax (284) (355) (90)
Total stockholders' equity 11,494 11,283 12,788
Total liabilities and stockholders'
equity $14,020 $13,750 $15,928
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of dollars)
For Three Months Ended
June 30, Mar. 31, June 30,
2007 2007 2006
Cash flows from operating activities:
Net income $ 610 $ 516 $2,387
Adjustments to reconcile net income
to cash provided by operating activities
of continuing operations:
(Income) loss from discontinued operations 4 -- (1,648)
Depreciation 256 252 267
Stock-based compensation 69 78 84
Amortization of capitalized software 24 25 29
Amortization of acquisition-related
intangibles 14 14 15
Deferred income taxes (3) (3) (41)
Increase (decrease) from changes in:
Accounts receivable (144) 17 (138)
Inventories (15) 28 (89)
Prepaid expenses and other current assets 42 (79) 9
Accounts payable and accrued expenses 110 (167) 133
Income taxes payable (132) (1) (334)
Accrued profit sharing and retirement 47 (111) 56
Change in funded status of retirement
plans and accrued retirement costs -- 1 (68)
Other 16 (16) (8)
Net cash provided by operating
activities of continuing operations 898 554 654
Cash flows from investing activities:
Additions to property,
plant and equipment (174) (179) (374)
Proceeds from sales of assets -- -- 2,982
Purchases of cash investments (1,479) (846) (3,063)
Sales and maturities of cash investments 1,529 1,011 1,983
Purchases of equity investments (6) (5) (17)
Sales of equity and other
long-term investments 3 2 2
Acquisitions, net of cash acquired -- (27) (28)
Net cash provided by (used in)
investing activities of continuing
operations (127) (44) 1,485
Cash flows from financing activities:
Payments on loans and long-term debt (43) -- (275)
Dividends paid (115) (58) (47)
Sales and other common stock transactions 374 154 150
Excess tax benefit from
stock option exercises 56 34 57
Stock repurchases (742) (857) (1,037)
Net cash used in financing activities
of continuing operations (470) (727) (1,152)
Net cash used in discontinued operations -- -- (34)
Effect of exchange rate changes on cash -- (1) 3
Net increase (decrease) in cash and
cash equivalents 301 (218) 956
Cash and cash equivalents,
beginning of period 965 1,183 722
Cash and cash equivalents,
end of period $1,266 $ 965 $1,678
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current presentation.
Segment Net Revenue
(Millions of dollars)
For Three Months Ended
June 30, Mar. 31, June 30,
2007 2007 2006
Semiconductor $3,257 $3,115 $3,505
Education Technology 167 76 192
Total net revenue $3,424 $3,191 $3,697
Segment Profit (Loss)
(Millions of dollars)
For Three Months Ended
June 30, Mar. 31, June 30,
2007 2007 2006
Semiconductor* $ 905 $ 831 $1,032
Education Technology 74 16 84
Corporate** (170) (167) (163)
Profit from operations $ 809 $ 680 $ 953
* Semiconductor profit from operations includes a benefit of $57 for a
sales tax refund and $60 from the royalty settlement in the second
quarter of 2006.
** Corporate includes the following stock-based compensation expense:
COR $ 13 $ 15 $ 16
R&D 21 23 25
SG&A 35 40 43
Profit from operations $ 69 $ 78 $ 84
Semiconductor
-- Revenue in the second quarter was $3.26 billion. This was an increase
of 5 percent from the prior quarter due to higher demand for DSP,
DLP(R) and analog products. Compared with a year ago, revenue
decreased 7 percent as higher demand for high-performance analog
products was more than offset by declines across a broad base of other
products.
-- Analog product revenue of $1.27 billion was up 2 percent from the
prior quarter due to increased demand for high-performance analog
products. Compared with the year-ago quarter, analog revenue
decreased 3 percent as a decline in analog revenue for cell phone
applications more than offset gains in high-performance analog
revenue. Revenue from high-performance analog products increased
6 percent from the prior quarter and increased 11 percent from a
year ago.
-- DSP product revenue of $1.24 billion was up 7 percent from the
prior quarter due to higher demand for products used in cell
phone applications. DSP product revenue declined 5 percent from
a year ago due to lower demand for a broad range of products.
-- TI's remaining Semiconductor revenue of $746 million was 5
percent higher than the prior quarter primarily due to growth in
DLP products and, to a lesser extent, standard logic products.
Microcontrollers and RISC microprocessors were about even with
the prior quarter while royalties declined. TI's remaining
Semiconductor revenue decreased 17 percent from the year-ago
quarter primarily due to a decline in RISC microprocessor revenue
and the royalty settlement in the year-ago quarter. To a lesser
extent, DLP products and standard logic products revenue also
declined while microcontrollers were about even with the year-ago
quarter.
-- Gross profit was $1.71 billion, or 52.5 percent of revenue. This was
an increase of $82 million from the prior quarter due to higher
revenue. Gross profit declined $105 million from the year-ago quarter
due to the combination of the royalty settlement and sales tax refund
in the year-ago quarter, as well as lower revenue.
-- Operating profit was $905 million, or 27.8 percent of revenue. This
was an increase of $74 million from the prior quarter due to higher
gross profit. It was a decline of $127 million from the year-ago
quarter primarily due to the combination of the royalty settlement and
the sales tax refund in the year-ago quarter.
-- Semiconductor orders were $3.25 billion. This was an increase of 6
percent from the prior quarter due to higher demand across a broad
range of analog and DSP products. Orders declined 13 percent from the
year-ago quarter due to broadly lower demand.
Semiconductor Highlights
-- TI delivered the industry's highest performance family of two- and
four-channel analog-to-digital data converters. The chips combine low
power, high performance and speed in a space-saving package and are
tailored for advanced communications, medical, video, imaging and
instrumentation applications.
-- TI introduced the industry's first location-detection system-on-chip
solution for low-power ZigBee(R) wireless sensor networking
applications such as asset and equipment tracking, inventory control,
patient monitoring, and security and commissioning networks.
-- Lenovo Mobile, China's leading handset manufacturer, selected TI's
"LoCosto" single-chip platform for a new family of low-cost,
multimedia-rich cell phones.
Education Technology
-- Revenue in the second quarter was $167 million. This was an increase
of $91 million from the prior quarter as retailers purchased
calculators in preparation for the back-to-school season. This was a
decrease of $25 million from the year-ago quarter, as some major
retailers delayed stocking calculator inventory until the third
quarter, closer to the start of the school year.
-- Gross profit was $109 million, or a record 65.1 percent of revenue.
This was up $64 million from the prior quarter due to higher revenue.
Gross profit decreased $10 million from the year-ago quarter due to
lower revenue.
-- Operating profit was $74 million, or 44.1 percent of revenue. This was
an increase of $58 million compared with the prior quarter due to
higher gross profit. It was a decrease of $10 million from the
year-ago quarter due to lower gross profit.
Safe Harbor Statement
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: 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 in this
release that describe our 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 its management:
-- Market demand for semiconductors, particularly for analog chips and
digital signal processors in key markets such as communications,
entertainment electronics and computing;
-- 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;
-- TI's ability to compete in products and prices in an intensely
competitive industry;
-- 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;
-- 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 networks and
fluctuations in foreign currency exchange rates;
-- Natural events such as severe weather and earthquakes in the locations
in which TI, its customers or its suppliers operate;
-- Availability and cost of raw materials, utilities, manufacturing
equipment, third-party manufacturing services and manufacturing
technology;
-- 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, the outcome of tax audits and the ability to realize
deferred tax assets;
-- 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 company forecasts;
-- The financial impact of inadequate or excess TI inventories to meet
demand that differs from projections;
-- Product liability or warranty claims, or recalls by TI customers for a
product containing a TI part;
-- TI's ability to recruit and retain skilled personnel; and
-- Timely implementation of new manufacturing technologies, installation
of manufacturing equipment and the ability to obtain needed
third-party foundry and assembly/test subcontract services.
For a more detailed discussion of these factors, see the text under the
heading "Risk Factors" in Item 1A of our most recent Form 10-K. The
forward-looking statements included in this release are made only as of the
date of publication, and we undertake no obligation to update the forward-
looking statements to reflect subsequent events or circumstances.
About Texas Instruments
Texas Instruments Incorporated provides innovative DSP and analog
technologies to meet our customers' real world signal processing
requirements. In addition to Semiconductor, the company includes the
Education Technology business. TI is headquartered in Dallas, Texas, and
has manufacturing, design or sales operations in more than 25 countries.
Texas Instruments is traded on the New York Stock Exchange under the
symbol TXN. More information is located on the World Wide Web at
http://www.ti.com.
TI Trademarks:
DLP
Other trademarks are the property of their respective owners.
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