- 2Q Revenue Grows 9% Sequentially
- Company Delivers Record Operating Profit
- EPS Expands to $0.38, Including $0.06 of Tax-Related Benefits
- Orders Increase 12% Sequentially
- TI to Increase Dividend 20%, Repurchase Additional $2 Billion
of Stock
• Download
Financials in MS Excel Format (45KB)
DALLAS (July 25, 2005) – Texas Instruments Incorporated (TI) (NYSE:
TXN) today reported revenue for the second quarter of $3239 million, up
9 percent sequentially and about even with the year-ago quarter. The sequential
growth primarily was due to increased demand for the company’s analog
and DSP semiconductor products. Also contributing to growth was the seasonal
increase in demand for calculators from TI’s Educational & Productivity
Solutions (E&PS) business.
Operating profit of $669 million, an all-time high, reflected stronger
gross profit as well as tight control of operating expenses. TI’s
gross profit margin expanded 2.1 percentage points sequentially to 47.0
percent of revenue, and TI’s operating margin increased 3.9 percentage
points to 20.6 percent of revenue.
Earnings per share (EPS) in the second quarter were $0.38, which includes
a net benefit of $0.06 from tax-related items.
Separately, the company announced plans to increase its dividend by 20
percent to an annual dividend payment of $0.12 per share effective with
the October 2005 dividend declaration. Also, the Board of Directors has
authorized a $2 billion stock repurchase, which is in addition to previously
announced stock repurchase authorizations.
“Our strong growth underscores the importance of DSP and analog
to a wide range of electronics equipment,” said Rich Templeton,
TI president and chief executive officer. “We believe that revenue
from our broad portfolio of advanced DSP and analog products outpaced
the results of our competitors.
“Good products, good execution and good cost control led to record
operating profit,” he said. “Our operations continued to produce
significant cash, and we were well-positioned to repurchase the company’s
stock in the second quarter. We repurchased an additional 52 million shares
in the quarter, or a total of 110 million shares since the beginning of
the year.
“We’re also encouraged that the inventory correction that
affected our DLP™ product revenue in the first half of the year
is now complete. DLP revenue grew 10 percent sequentially, and we expect
it will contribute to growth again in the third quarter,” he said.
“High-performance analog turned in another strong quarter with 13
percent sequential growth. DSP revenue grew 8 percent sequentially driven
by strong growth in wireless applications. Total revenue from the wireless
market increased 8 percent as a result of our leading position in the
fast-growing 3G market. With Semiconductor orders up 15 percent sequentially
in the second quarter and the book-to-bill ratio at 1.07, we believe the
company will deliver solid growth again in the third quarter.”
Gross Profit
In the second quarter, TI’s gross profit of $1521 million, or
47.0 percent of revenue, increased $185 million sequentially due to
higher gross profit from Semiconductor and E&PS. Compared with a
year ago, gross profit increased $40 million for the same reason.
Operating Expenses
Research and development (R&D) expense of $493 million, or 15.2
percent of revenue, decreased $2 million sequentially. R&D expense
declined $21 million from a year ago due to a lower accrual for profit
sharing.
Selling, general and administrative (SG&A) expense of $359 million,
or 11.1 percent of revenue, increased $15 million sequentially primarily
due to a gain on the disposition of a sales facility in the first quarter
as well as seasonally higher marketing expenses in E&PS. SG&A
decreased $16 million from a year ago primarily due to a lower profit-sharing
accrual.
Operating Profit
Operating profit of $669 million, or 20.6 percent of revenue, increased
$172 million sequentially due to higher gross profit, and increased
$77 million from a year ago due to higher gross profit as well as lower
operating expenses.
Other Income (Expense) Net (OI&E)
OI&E of $56 million increased $8 million sequentially primarily
due to adjustments to previously accrued interest expense related to
favorable developments on several outstanding tax matters, partially
offset by reduced interest income on lower cash balances. OI&E increased
$18 million from a year ago primarily due to these adjustments.
Net Income
Net income was $628 million, or $0.38 per share.
The net tax benefit recognized during the second quarter includes the
previously mentioned favorable developments on outstanding tax matters,
partially offset by the tax expense associated with the planned repatriation
of foreign earnings under the American Jobs Creation Act. The company
intends to invest these repatriated earnings in accordance with the
provisions of the Act. Including these items, the overall tax rate for
the second quarter was about 13 percent. The ongoing effective annual
tax rate, excluding these items, was about 24 percent.
Orders
TI orders of $3389 million increased $361 million sequentially and $136
million from a year ago due to higher demand for Semiconductor products.
Cash
Cash flow from operations of $827 million increased $304 million sequentially
primarily due to payment of employee profit sharing in the first quarter
for 2004 performance and higher net income, partially offset by a seasonal
increase in accounts receivable. Cash flow from operations increased
$321 million from a year ago due to higher net income and lower inventories.
At the end of the second quarter, total cash (cash and cash equivalents
plus short-term investments and long-term cash investments) was $4478
million, down $662 million from the end of the previous quarter and
$1056 million from the end of the year-ago period. During the quarter,
the company used $1292 million in cash to repurchase 52 million shares
of TI common stock.
Capital Spending and Depreciation
Capital expenditures of $257 million decreased $20 million sequentially
and $99 million from a year ago. TI’s capital expenditures in
the second quarter were primarily for construction of TI's new 300-millimeter
manufacturing facility in Texas, as well as semiconductor assembly-and-test
equipment and advanced wafer-fabrication equipment.
Depreciation of $345 million decreased $2 million sequentially and $18
million from a year ago.
Accounts Receivable and Inventories
Accounts receivable of $1902 million at the end of the second quarter
increased $206 million sequentially due to seasonally higher E&PS
receivables and higher revenue. Accounts receivable decreased $28 million
from the end of the year-ago quarter. Days sales outstanding were 53
at the end of the second quarter compared with 51 at the end of the
previous quarter and 54 at the end of the year-ago quarter.
Inventories of $1202 million at the end of the second quarter decreased
$43 million from the end of the previous quarter due to strong shipments,
and decreased $83 million from the end of the year-ago quarter due to
lower factory loadings. Days of inventory at the end of the second quarter
were 63 compared with 69 at the end of the previous quarter and 66 at
the end of the year-ago quarter.
Outlook
TI intends to provide a mid-quarter update to its financial outlook
on Sept. 8, 2005, 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 2005, TI expects revenue to be in the following
ranges:
-
Total TI, $3290 million to $3560 million;
-
Semiconductor, $2835 million to $3065 million;
-
Sensors & Controls, $275 million to $295 million; and
-
E&PS, $180 million to $200 million.
TI expects EPS to be in the range of $0.31 to $0.35. This estimate
includes the expensing of employee stock options, which TI will initiate
in the third quarter as previously announced. This expense is expected
to be about $80 million in the third quarter, or $0.03 per share.
For 2005, TI continues to expect: R&D to be about $2.1 billion,
capital expenditures to be about $1.3 billion and depreciation to be
about $1.4 billion. The ongoing effective tax rate for the remainder
of the year is expected to be about 24 percent.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(In millions, except per-share amounts)
For Three Months Ended
June 30 Mar. 31 June 30
2005 2005 2004
Net revenue $ 3239 $ 2972 $ 3241
Operating costs and expenses:
Cost of revenue 1718 1636 1760
Gross profit 1521 1336 1481
Gross profit % of revenue 47.0% 44.9% 45.7%
Research and development (R&D) 493 495 514
R&D % of revenue 15.2% 16.6% 15.8%
Selling, general and
administrative (SG&A) 359 344 375
SG&A % of revenue 11.1% 11.6% 11.6%
Total 2570 2475 2649
Profit from operations 669 497 592
Operating profit % of revenue 20.6% 16.7% 18.3%
Other income (expense) net 56 48 38
Interest on loans 2 2 8
Income before income taxes 723 543 622
Provision for income taxes 95 132 181
Net income $ 628 $ 411 $ 441
Basic earnings per common share $ .38 $ .24 $ .25
Diluted earnings per common share $ .38 $ .24 $ .25
Average shares outstanding, basic 1633 1701 1732
Average shares outstanding, diluted 1669 1735 1772
Cash dividends declared per
share of common stock $ .025 $ .025 $ .021
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
June 30 Mar. 31 June 30
2005 2005 2004
Assets
Current assets:
Cash and cash equivalents $ 2133 $ 1856 $ 1623
Short-term investments 2345 3284 2311
Accounts receivable, net of
allowances for customer
adjustments and doubtful
accounts of $39 million at
June 30, 2005, $42 million at
March 31, 2005, and
$42 million at June 30, 2004 1902 1696 1930
Inventories:
Raw materials 116 113 135
Work in process 700 756 799
Finished goods 386 376 351
Inventories 1202 1245 1285
Deferred income taxes 597 577 467
Prepaid expenses and other
current assets 320 413 491
Total current assets 8499 9071 8107
Property, plant and equipment
at cost 9323 9409 9831
Less accumulated depreciation (5566) (5564) (5654)
Property, plant and equipment,
net 3757 3845 4177
Long-term cash investments --- --- 1600
Equity and debt investments 265 260 254
Goodwill 708 701 693
Acquisition-related intangibles 86 98 138
Deferred income taxes 568 457 496
Capitalized software licenses, net 288 292 309
Prepaid retirement costs 246 259 166
Other assets 69 62 110
Total assets $14486 $15045 $16050
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current
portion long-term debt $ 306 $ 318 $ 415
Accounts payable and accrued
expenses 1479 1573 1601
Income taxes payable 255 262 35
Profit sharing contributions
and accrued retirement 70 40 183
Total current liabilities 2110 2193 2234
Long-term debt 55 55 375
Accrued retirement costs 534 564 611
Deferred income taxes 35 40 59
Deferred credits and other
liabilities 289 289 333
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, 2005 --
1,738,514,238; March 31, 2005 --
1,738,491,029; June 30, 2004 --
1,738,123,534 1739 1738 1738
Paid-in capital 611 679 812
Retained earnings 12197 11610 10269
Less treasury common stock at cost:
Shares: June 30, 2005 --
115,461,457; March 31, 2005 --
76,326,181; June 30, 2004 --
7,045,901 (2908) (1929) (193)
Accumulated other comprehensive
income (loss):
Minimum pension liability (163) (167) (159)
Unrealized holding gains
(losses) on investments (11) (24) (19)
Deferred compensation (2) (3) (10)
Total stockholders' equity 11463 11904 12438
Total liabilities and stockholders'
equity $14486 $15045 $16050
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Statements of Cash Flows
(In millions of dollars)
For Three Months Ended
June 30 Mar. 31 June 30
2005 2005 2004
Cash flows from operating activities:
Net income $ 628 $ 411 $ 441
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation 345 347 363
Amortization of acquisition-related
costs 15 15 19
(Gains)/losses on investments 2 3 (3)
(Gains)/losses on sales of assets (1) (25) ---
Deferred income taxes (174) (37) 62
(Increase) decrease:
Accounts receivable (212) (14) (254)
Inventories 43 3 (137)
Prepaid expenses and other
current assets 86 (90) 56
Accounts payable and accrued
expenses 1 33 40
Income taxes payable 10 72 (174)
Accrued profit sharing and
retirement 31 (226) 100
Noncurrent accrued retirement costs 6 5 (5)
Other 47 26 (2)
Net cash provided by operating
activities 827 523 506
Cash flows from investing activities:
Additions to property, plant and
equipment (257) (277) (356)
Sales of assets 5 42 ---
Purchases of cash investments (248) (818) (1122)
Sales and maturities of cash
investments 1192 1204 1078
Purchases of equity investments (6) (2) (12)
Sales of equity and debt investments --- --- 19
Acquisition of businesses, net of
cash acquired (18) --- ---
Net cash provided by (used in)
investing activities 668 149 (393)
Cash flows from financing activities:
Payments on loans payable (10) --- (28)
Dividends paid on common stock (41) (43) (37)
Sales and other common stock
transactions 116 57 69
Common stock repurchases (1292) (1493) (113)
Net cash used in financing
activities (1227) (1479) (109)
Effect of exchange rate changes
on cash 9 (5) 4
Net increase (decrease) in cash
and cash equivalents 277 (812) 8
Cash and cash equivalents at
beginning of period 1856 2668 1615
Cash and cash equivalents at
end of period $ 2133 $ 1856 $ 1623
Business Segment Net Revenue
(In millions of dollars)
For Three Months Ended
June 30 Mar. 31 June 30
2005 2005 2004
Semiconductor
Trade $ 2764 $ 2595 $ 2783
Intersegment 1 2 1
2765 2597 2784
Sensors & Controls
Trade 294 295 289
Intersegment 1 1 1
295 296 290
Educational & Productivity
Solutions
Trade 181 82 169
Corporate activities (2) (3) (2)
Total net revenue $ 3239 $ 2972 $ 3241
Business Segment Profit (Loss)
(In millions of dollars)
For Three Months Ended
June 30 Mar. 31 June 30
2005 2005 2004
Semiconductor $ 594 $ 460 $ 526
Sensors & Controls 72 69 77
Educational & Productivity
Solutions 79 20 68
Corporate activities (57) (55) (56)
Charges/gains and acquisition-
related amortization (19) 3 (23)
Profit from operations $ 669 $ 497 $ 592
Semiconductor
- Semiconductor revenue of $2765 million increased $168 million sequentially,
or 6 percent, due to strong growth in demand for the company’s
analog and DSP products. Compared with a year ago, revenue was about
even as higher demand for DSP products offset declines in other product
areas.
- Gross profit was $1315 million, or 47.6 percent of revenue. Gross
profit increased $126 million sequentially primarily due to higher product
revenue as well as a combination of manufacturing cost reductions and
higher utilization of the company’s Semiconductor manufacturing
assets. Compared with a year ago, gross profit increased $30 million
due to manufacturing cost reductions.
- Operating profit was $594 million, or 21.5 percent of revenue, up
$134 million sequentially primarily due to higher gross profit. Compared
with a year ago, operating profit increased $68 million due to a combination
of lower operating expenses and higher gross profit.
- Analog revenue increased 9 percent sequentially as increased demand
for high-performance analog products more than offset the impact of
the sale of the company’s commodity LCD driver product line, which
was completed in the first quarter of 2005. Compared with a year ago,
analog revenue decreased 7 percent primarily reflecting the sale of
the company’s commodity LCD driver product line. High-performance
analog revenue increased 13 percent sequentially and was about even
with a year ago.
- DSP revenue increased 8 percent sequentially and 10 percent from a
year ago primarily due to higher demand from the wireless market.
- TI’s remaining Semiconductor revenue was about even sequentially
as higher demand for DLP, RISC microprocessor, microcontroller and standard
logic products more than offset a decline in royalties. Remaining Semiconductor
revenue declined 6 percent compared with a year ago primarily due to
lower demand for DLP and standard logic products, which more than offset
increased demand for RISC microprocessors and microcontrollers.
- Semiconductor orders of $2950 million increased 15 percent sequentially
and 7 percent from a year ago due to strong growth in demand across
most of the company’s products.
2Q Semiconductor Highlights
- Samsung Electronics selected TI’s OMAP-DM™ multimedia
processor technology for several digital TV mobile phone models for
the Korean marketplace. The first model is already available to consumers
in South Korea.
- TI’s 1080p DLP products for high-definition televisions (HDTVs)
have been fully qualified, and production shipments to customers have
begun. HDTVs based on DLP technology are the first 1080p TVs available
in volume to the U.S. market. Customers who have announced 1080p DLP
TVs include Samsung, Mitsubishi, Toshiba and HP.
- TI’s DSP-based digital media processor technology is at the
heart of the newly released Slingbox™ from Sling Media. The Slingbox
transforms virtually any networked laptop or Internet-connected device
into a personal TV, allowing consumers to watch live television programming
anywhere.
Sensors & Controls
- Sensors & Controls revenue was $295 million, about even sequentially
and up $5 million from a year ago due to higher demand for sensor products
for the automotive market.
- Gross profit was $108 million, or 36.6 percent of revenue, up $2 million
sequentially primarily due to cost reductions. Compared with a year
ago, gross profit decreased $4 million reflecting a combination of cost
reductions in the year-ago quarter and start-up expenses for new products
in the second quarter.
- Operating profit was $72 million, or 24.5 percent of revenue, up $3
million sequentially primarily due to higher gross profit. Compared
with a year ago, operating profit decreased $5 million primarily due
to lower gross profit.
Educational & Productivity Solutions (E&PS)
- E&PS revenue was $181 million, up $99 million sequentially due
to seasonally higher sales of graphing calculator products in preparation
for the back-to-school retail season. Compared with a year ago, revenue
increased $12 million due to higher demand for graphing calculator products.
- Gross profit was $111 million, or 61.2 percent of revenue, up $67
million sequentially and $12 million from a year ago primarily due to
higher revenue.
- Operating profit was $79 million, or 43.7 percent of revenue, up $59
million sequentially and $11 million from a year ago due to higher 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
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 telecommunications
and computers;
- 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 suppliers operate;
- Availability and cost of raw materials 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;
- Changes in the accounting treatment of stock options and other share-based
compensation;
- 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 “Cautionary Statements Regarding Future Results of Operations”
in Item 1 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.
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’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
OMAP-DM
DLP
Other trademarks are the property of their respective owners.
Back to Top |
