- Revenue Grows 23% from Year Ago
- Gross Profit Margin Increases to 50.1 Percent of Revenue
- Company Earns $0.33 Per Share from Continuing Operations, Up
57% from Year Ago
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Financials in MS Excel Format (56KB)
• Non-GAAP
Financial Measures Reconciliation
Except as noted, financial results are for continuing operations.
TI’s Sensors & Controls business is reported as a discontinued
operation. The previously announced divestiture of this business is
expected to close in the second quarter of 2006.
DALLAS (April 18, 2006) – Texas Instruments Incorporated (TI)
(NYSE: TXN) today reported first-quarter 2006 revenue of $3.33 billion,
up 23 percent from the same quarter in 2005 as growth in the company’s
Semiconductor segment accelerated for the third consecutive quarter.
Revenue in the first quarter, usually the company’s seasonally
weakest quarter, was about even with the fourth quarter of 2005.
Earnings per share from continuing operations were $0.33, up 57 percent
from a year ago, and included stock-based compensation expense of $0.04.
The company began expensing stock options in the third quarter of 2005
and, therefore, equivalent stock-based compensation expense was not
reflected in the year-ago period when the company earned $0.21 per share
from continuing operations.
“This is a good start to the year. Demand was strong, and we expect
it to continue,” said Rich Templeton, TI president and chief executive
officer. “Especially encouraging was our growth in digital signal
processors and analog semiconductors, increasing 32 percent and 24 percent
respectively from a year ago. These are the core semiconductors of today’s
electronics, including 3G cell phones where our revenue doubled from
a year ago; low-end cell phones that are beginning to gain traction
in large, emerging markets; and wireless basestations where our revenue
grew by more than half. We also built momentum in consumer awareness
for high-definition televisions that use TI’s DLP®
picture technology.”
Gross Profit
TI’s gross profit was $1.67 billion, or 50.1 percent of revenue,
an increase of $15 million from the fourth quarter. Gross profit increased
$428 million from the year-ago quarter due to higher revenue. Stock-based
compensation expense of $18 million was included in cost of revenue in
the first quarter of 2006.
Operating Expenses
Research and development (R&D) expense of $533 million, or 16.0
percent of revenue, increased $40 million sequentially due to a combination
of increased semiconductor product development, especially for wireless
and high-performance analog products, and seasonally higher pay and
benefits. R&D expense increased $46 million from the year-ago quarter
primarily due to stock-based compensation expense of $28 million, which
was included in the first quarter of 2006, as well as higher semiconductor
product development. R&D in the first quarter included expenses
associated with TI’s acquisition of Chipcon Group ASA, a leader
in the design of short-range, low-power wireless RF (radio frequency)
transceiver semiconductors. The acquisition will help expand TI’s
high-performance analog product portfolio.
Selling, general and administrative (SG&A) expense of $421 million,
or 12.6 percent of revenue, increased $17 million sequentially primarily
due to seasonally higher pay and benefits. SG&A increased $100 million
from a year ago primarily due to the combination of stock-based compensation
expense of $45 million included in the first quarter of 2006 and higher
Semiconductor marketing expense, which included consumer advertising
for DLP products.
Operating Profit
Operating profit of $718 million, or 21.5 percent of revenue, declined
$42 million sequentially primarily due to higher operating expenses
in the Semiconductor segment. Operating profit increased $282 million
from the year-ago quarter due to higher gross profit in the Semiconductor
segment. Total stock-based compensation expense of $91 million, or 2.7
percent of revenue, was included in corporate activities in the first
quarter.
Net Income
Income from continuing operations was $542 million or $0.33 per share,
which includes $0.04 of stock-based compensation expense. Income from
discontinued operations was $43 million. Net income was $585 million
or $0.36 per share.
Orders
TI orders of $3.60 billion increased $116 million sequentially due to
seasonally higher orders in the Education Technology business in preparation
for the back-to-school retail season. TI orders increased $859 million
from the year-ago quarter due to higher demand for Semiconductor products.
Cash
Cash flow from operations of $522 million decreased $358 million sequentially
and increased $24 million from the year-ago quarter.
At the end of the first quarter, total cash (cash and cash equivalents
plus short-term investments) was $3.66 billion, down $1.67 billion from
the end of the previous quarter and $1.47 billion from the end of the
year-ago period. During the quarter, the company repurchased 47 million
shares of TI common stock for $1.44 billion, paid $48 million in dividends
and retired $311 million of long-term debt. The company also acquired
Chipcon in the first quarter for $177 million in cash, net of cash acquired.
Capital Spending and Depreciation
Capital expenditures of $408 million increased $74 million sequentially
and increased $141 million from the year-ago quarter. TI’s capital
expenditures in the first quarter were primarily for assembly, test
and advanced 65- and 45-nanometer wafer fabrication equipment used to
manufacture semiconductors.
Depreciation of $270 million decreased $66 million sequentially and
$71 million from a year ago. The company’s change from an accelerated
to a straight-line method of depreciation beginning in the first quarter
of 2006 lowered first-quarter depreciation by $29 million.
Accounts Receivable and Inventories
Accounts receivable of $1.80 billion increased $150 million sequentially
due to higher Semiconductor shipments in the last month of the quarter
versus the comparable period in the prior quarter. Accounts receivable
increased $274 million from the year-ago quarter due to higher revenue.
Days sales outstanding were 49 at the end of the first quarter compared
with 45 at the end of the previous quarter and 51 at the end of the
year-ago quarter.
Inventory of $1.25 billion at the end of the first quarter increased
$61 million sequentially as the company built inventory from the lower-than-desired
levels of the fourth quarter in order to better support customer demand.
Inventory increased $90 million compared with the year-ago level. Days
of inventory at the end of the first quarter were 67 compared with 64
at the end of the previous quarter and 71 at the end of the year-ago
quarter.
Outlook
TI intends to provide a mid-quarter update to its financial outlook
on June 8, 2006, by issuing a press release and holding a conference
call. Both will be available on the company’s web site.
For the second quarter of 2006, TI expects revenue from continuing operations
to be in the following ranges:
-
Total TI, $3.46 billion to $3.75 billion;
-
Semiconductor, $3.29 billion to $3.56 billion; and
-
Educational & Productivity Solutions, $170 million to $190 million.
TI expects earnings per share from continuing operations to be in the
range of $0.38 to $0.43. This estimate includes about $0.04, or about
$90 million, for stock-based compensation expense.
In 2006 for continuing operations, the estimated annual effective tax
rate remains about 30 percent. This rate is based on current tax law and
does not assume reinstatement of the federal research tax credit, which
expired at the end of 2005. Also in 2006 for continuing operations, TI
still expects R&D expense of about $2.2 billion and capital expenditures
of about $1.3 billion. Depreciation is still expected to be about $1.03
billion.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except per-share amounts)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2006 2005 2005
Net revenue $ 3,334 $ 3,324 $ 2,702
Cost of revenue (COR) 1,662 1,667 1,458
Gross profit 1,672 1,657 1,244
Gross profit % of revenue 50.1% 49.8% 46.0%
Research and development (R&D) 533 493 487
R&D % of revenue 16.0% 14.8% 18.0%
Selling, general and administrative
(SG&A) 421 404 321
SG&A % of revenue 12.6% 12.1% 11.9%
Total operating expenses 2,616 2,564 2,266
Profit from operations 718 760 436
Operating profit % of revenue 21.5% 22.9% 16.1%
Other income (expense) net 52 51 48
Interest expense on loans 3 2 2
Income from continuing operations
before income taxes 767 809 482
Provision for income taxes 225 187 111
Income from continuing operations 542 622 371
Income from discontinued operations,
net of income taxes 43 33 40
Net income $ 585 $ 655 $ 411
Basic earnings per common share:
Income from continuing operations $ .34 $ .39 $ .22
Net income $ .37 $ .41 $ .24
Diluted earnings per common share:
Income from continuing operations $ .33 $ .38 $ .21
Net income $ .36 $ .40 $ .24
Average shares outstanding (millions):
Basic 1,585 1,606 1,701
Diluted 1,618 1,643 1,735
Cash dividends declared per share
of common stock $ .030 $ .030 $ .025
Stock-based compensation expense
included in continuing operations:
COR 18 17 ---
R&D 28 27 ---
SG&A 45 41 5
Profit from operations 91 85 5
% of revenue 2.7% 2.6% 0.2%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
Mar. 31, Dec. 31, Mar. 31,
2006 2005 2005
Assets
Current assets:
Cash and cash equivalents $ 722 $ 1,214 $ 1,851
Short-term investments 2,942 4,116 3,284
Accounts receivable, net of allowances
of ($32), ($34) and ($37) 1,798 1,648 1,524
Raw materials 91 83 72
Work in process 819 813 739
Finished goods 336 289 345
Inventories 1,246 1,185 1,156
Deferred income taxes 626 619 577
Prepaid expenses and other
current assets 248 135 341
Assets of discontinued operations
held for sale 495 472 425
Total current assets 8,077 9,389 9,158
Property, plant and equipment at cost 8,442 8,374 8,880
Less accumulated depreciation (4,574) (4,644) (5,163)
Property, plant and equipment, net 3,868 3,730 3,717
Equity and debt investments 240 236 260
Goodwill 793 677 677
Acquisition-related intangibles 131 60 97
Deferred income taxes 390 393 457
Capitalized software licenses, net 222 243 288
Prepaid retirement costs 205 222 273
Other assets 112 113 118
Total assets $14,038 $15,063 $15,045
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion
of long-term debt $ --- $ 301 $ 318
Accounts payable 720 702 648
Accrued expenses and other liabilities 895 948 826
Income taxes payable 280 154 253
Accrued profit sharing and retirement 43 121 34
Liabilities of discontinued operations
held for sale 157 151 122
Total current liabilities 2,095 2,377 2,201
Long-term debt 318 329 55
Accrued retirement costs 116 136 556
Deferred income taxes 17 23 40
Deferred credits and other liabilities 254 261 289
Total liabilities 2,800 3,126 3,141
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: March 31, 2006 --
1,739,070,044; December 31, 2005 --
1,738,780,512; March 31, 2005 --
1,738,491,029 1,739 1,739 1,738
Paid-in capital 744 742 679
Retained earnings 13,930 13,394 11,610
Less treasury common stock at cost:
Shares: March 31, 2006 -- 181,032,577;
December 31, 2005 -- 142,190,707;
March 31, 2005 -- 76,326,181 (5,092) (3,856) (1,929)
Accumulated other comprehensive
income (loss):
Minimum pension liability (65) (65) (167)
Unrealized gains (losses) on
available-for-sale investments (17) (16) (24)
Unearned compensation (1) (1) (3)
Total stockholders' equity 11,238 11,937 11,904
Total liabilities and stockholders'
equity $14,038 $15,063 $15,045
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of dollars)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2006 2005 2005
Cash flows from operating activities:
Net income $ 585 $ 655 $ 411
Adjustments to reconcile net income to
cash provided by operating activities
of continuing operations:
Less income from discontinued
operations (43) (33) (40)
Depreciation 270 336 341
Stock-based compensation 91 85 5
Amortization of capitalized software 30 33 29
Amortization of acquisition-related
costs 16 13 15
Purchased in-process research
and development 5 --- ---
(Gains)/losses on investments and
sales of assets (5) (7) (22)
Deferred income taxes (36) (93) (37)
(Increase)/decrease from changes in:
Accounts receivable (144) 105 7
Inventories (57) (111) 6
Prepaid expenses and other current
assets (111) 30 (88)
Accounts payable and accrued expenses (106) (24) 20
Income taxes payable 151 99 72
Accrued profit sharing and retirement (99) 15 (213)
Decrease/(increase) in noncurrent
accrued retirement costs 17 (180) 7
Other (42) (43) (15)
Net cash provided by operating activities
of continuing operations 522 880 498
Cash flows from investing activities:
Additions to property, plant and
equipment (408) (334) (267)
Sales of assets 4 --- 42
Purchases of cash investments (1,153) (2,690) (818)
Sales and maturities of cash
investments 2,341 1,887 1,204
Purchases of equity investments (5) (4) (2)
Sales of equity and debt investments 7 14 ---
Acquisition of businesses, net of
cash acquired (177) --- ---
Net cash provided by (used in) investing
activities of continuing operations 609 (1,127) 159
Cash flows from financing activities:
Proceeds from loans and long-term debt --- 275 ---
Payments on loans and long-term debt (311) (1) ---
Dividends paid on common stock (48) (48) (43)
Sales and other common stock
transactions 142 128 57
Excess tax benefit from stock option
exercises 7 17 ---
Stock repurchases (1,440) (870) (1,493)
Net cash used in financing activities
of continuing operations (1,650) (499) (1,479)
Cash flows from discontinued operations:
Operating activities 35 28 26
Investing activities (10) (13) (11)
Net cash provided by discontinued
operations 25 15 15
Effect of exchange rate changes on cash 2 4 (5)
Net decrease in cash and cash equivalents (492) (727) (812)
Cash and cash equivalents, beginning of
period 1,214 1,941 2,663
Cash and cash equivalents, end of period $ 722 $ 1,214 $ 1,851
Business Segment Net Revenue
(In millions of dollars)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2006 2005 2005
Semiconductor $ 3,262 $ 3,258 $ 2,621
Education Technology 74 67 82
Intersegment eliminations (2) (1) (1)
Total net revenue $ 3,334 $ 3,324 $ 2,702
Business Segment Profit (Loss)
(In millions of dollars)
For Three Months Ended
Mar. 31, Dec. 31, Mar. 31,
2006 2005 2005
Semiconductor $ 883 $ 912 $ 462
Education Technology 13 10 20
Corporate activities* (178) (162) (46)
Profit from operations $ 718 $ 760 $ 436
* Corporate activities include stock-based compensation expense of $91
million, $85 million and $5 million for the first quarter of 2006, the
fourth quarter of 2005 and the first quarter of 2005. Also included in
the first quarter of 2005 are gains of $23 million on sales of assets
related primarily to the disposition of a sales facility and the sale of
the commodity liquid crystal display driver product line.
Semiconductor
- Revenue of $3.26 billion in the first quarter was about even sequentially,
and increased 24 percent from the year-ago quarter primarily due to
demand for the company’s DSP and analog products. Revenue from
semiconductors used in wireless applications was even sequentially and
was up 32 percent from a year ago.
- Gross profit in the first quarter was $1.66 billion, or 50.8 percent
of revenue. Gross profit increased $12 million sequentially, and increased
$460 million from the year-ago quarter due to higher revenue. Operating
profit in the first quarter was $883 million, or 27.1 percent of revenue,
down $29 million sequentially due to higher operating expenses. Compared
with the year-ago quarter, operating profit increased $421 million due
to higher gross profit.
- Analog revenue was even sequentially, and increased 24 percent from
the year-ago quarter primarily due to demand for high-performance analog
products. Revenue from high-performance analog products grew 6 percent
sequentially and 43 percent from a year ago.
- DSP revenue in the first quarter increased 4 percent sequentially
due to demand for communications infrastructure products, including
high-density Voice over Internet Protocol (VoIP) and wireless basestation
products. DSP revenue increased 32 percent from the year-ago quarter
due to higher demand from the wireless market.
- TI’s remaining Semiconductor revenue in the first quarter decreased
6 percent sequentially primarily due to the expected seasonal decline
in DLP semiconductors used in high-definition televisions and projectors,
as well as lower royalties. This more than offset higher revenue in
microcontrollers, RISC microprocessors and standard logic products.
From a year ago, remaining Semiconductor revenue increased 14 percent
primarily due to growth in standard logic, DLP, microcontroller and
RISC microprocessor revenue more than offsetting a decline in royalties.
- Semiconductor orders of $3.43 billion in the first quarter were about
even sequentially, and increased 32 percent from a year ago due to broad-based
demand, especially for the company’s wireless and high-performance
analog products.
1Q Semiconductor Highlights
- TI announced its OMAP™ 3 product, believed to be the industry’s
first applications processor in 65-nanometer process technology, that
will power a new class of advanced cell phones by enabling improvements
in entertainment and productivity features.
- TI joined other wireless and gaming industry leaders to define and
support an open gaming architecture to accelerate the adoption of premium
mobile games.
- TI introduced a new family of high-performance analog amplifiers featuring
precision performance at one-tenth the power consumption of the nearest
competitive device, making them ideal for medical instrumentation, temperature
measurement, test equipment, security and consumer systems.
- TI unveiled PIQUA™, a new IP network quality management system
based on TI's DSP technology and embedded software solutions. Using
sophisticated real-time calculations to instantly assess quality parameters,
PIQUA allows network operators to proactively manage quality-of-service
characteristics such as echo, dropped packets and line delay.
Educational & Productivity Solutions
- Revenue in the first quarter was $74 million, up $7 million sequentially
due to higher demand for scientific calculators. Revenue was down $8
million from the year-ago quarter due to an expected shift of instructional
dealers’ purchases closer to second- and third-quarter school
demand.
- Gross profit in the first quarter was $41 million, or 55.7 percent
of revenue, up $6 million sequentially primarily due to higher revenue
and down $3 million from the year-ago quarter primarily due to lower
revenue.
- Operating profit in the quarter was $13 million, or 18.3 percent of
revenue, an increase of $3 million sequentially, and a decrease of $7
million from the year-ago quarter primarily due to lower revenue.
###
“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
the Company’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 the Company 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;
- Consolidation of TI’s 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 and critical manufacturing
equipment;
- 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 the Company’s most
recent Form 10-K. The forward-looking statements included in this release
are made only as of the date of publication, and the Company undertakes
no obligation to update the forward-looking statements to reflect subsequent
events or circumstances.
Texas Instruments Incorporated provides innovative DSP and analog technologies
to meet our customers’ real world signal processing requirements.
In addition to Semiconductor, the company’s businesses include Sensors
& Controls and Education Technology. 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 www.ti.com.
TI Trademarks:
DLP
OMAP
PIQUA
Other trademarks are the property of their respective owners.
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