- Revenue Up 11% Sequentially and 24% from a Year Ago, Including
$70 Million for Royalty Settlement
- $0.47 EPS from Continuing Operations, Up 42% Sequentially
and 34% from a Year Ago
- $1.50 EPS from Continuing and Discontinued Operations,
Including Gain on Sale
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Financials in MS Excel Format (58KB)
• Non-GAAP
Financial Measures Reconciliation
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 24, 2006) – Texas Instruments Incorporated (TI) (NYSE:
TXN) today reported revenue of $3.70 billion for the second quarter
of 2006. Revenue was 11 percent higher sequentially and 24 percent higher
than the same quarter a year ago as demand for the company’s semiconductors
continued to strengthen. Sequential growth also benefited from seasonal
demand for graphing calculators as retailers began to stock for the
upcoming back-to-school season. As previously announced, the company
received a $70 million royalty settlement in the quarter that was included
in revenue.
Earnings per share (EPS) from continuing operations were $0.47, up 42
percent sequentially and 34 percent from a year ago. EPS included an
expense of $0.03 from stock-based compensation, a benefit of $0.03 from
a sales tax refund and a benefit of $0.02 from the royalty settlement.
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 quarter, when the company earned $0.35 per
share from continuing operations.
“This was another excellent quarter for Texas Instruments,”
said Rich Templeton, president and chief executive officer. “All
regions of the world showed strong revenue growth from a year ago. Revenue
from our wireless semiconductors grew 27 percent, including more than
70 percent growth in 3G; revenue from high-performance analog semiconductors
grew 32 percent; and revenue from our DLP® picture technology grew
34 percent.
“Strategically, our focus on open wireless standards was reinforced
by the actions of operators around the world, who are accelerating their
infrastructure transitions to GSM because of its cost effectiveness and
the wide range of choices it offers,” Templeton said.
“Going into the third quarter, our backlog of orders is up, and
our outlook is for seasonal growth. As always, we will pay close attention
to the world’s economies and to our inventory in the various market
channels.”
Gross Profit
TI’s gross profit was $1.91 billion, or 51.6 percent of revenue.
This was an increase of $235 million from the prior quarter and an increase
of $481 million from the year-ago quarter. The increases over both periods
reflect higher revenue in the company’s two segments, Semiconductor
and Education Technology (E&PS).
Operating Expenses
Research and development (R&D) expense was $536 million, or 14.5
percent of revenue. R&D increased $3 million from the prior quarter
and $51 million from the year-ago quarter. The increases were due to
higher spending for development of new semiconductor devices, particularly
associated with wireless applications.
Selling, general and administrative (SG&A) expense was $418 million,
or 11.3 percent of revenue. This expense decreased $3 million from the
prior quarter and was up $79 million from the year-ago quarter. The
increase from a year ago was primarily due to the combination of stock-based
compensation expense and higher spending for consumer advertising of
the company’s DLP semiconductors used in high-definition televisions.
Operating Profit
Operating profit was $953 million, or 25.8 percent of revenue. This
was an increase of $235 million from the prior quarter primarily due
to higher gross profit in both of the company’s segments. It was
also an increase of $351 million from the year-ago quarter due to higher
gross profit in the Semiconductor segment. Total stock-based compensation
expense of $84 million, or 2.3 percent of revenue, was included in Corporate
in the second quarter of 2006.
Other Income (Expense) Net (OI&E)
OI&E of $88 million increased $36 million from the prior quarter
and $32 million from the year-ago quarter due to a sales tax refund
and higher interest income.
Net Income
Income from continuing operations was $739 million, or $0.47 per share.
Net income, which includes income from continuing and discontinued operations,
was $2.39 billion, or $1.50 per share. This included $1.65 billion from
discontinued operations, almost all of which was a gain on the sale
of the company’s former Sensors & Controls business.
Orders
TI orders were $3.91 billion. This was an increase of $302 million from
the prior quarter and an increase of $767 million from the year-ago
quarter. Both increases were primarily due to higher demand for the
company’s semiconductor products.
Cash
Cash flow from operations was $667 million. This was an increase of
$145 million from the prior quarter and a decrease of $97 million from
the year-ago quarter.
At the end of the second quarter, total cash (cash and cash equivalents
plus short-term investments) was $5.67 billion, up $2.01 billion from
the end of the prior quarter and up $1.20 billion from the end of the
year-ago quarter. These increases were primarily due to the $2.98 billion
of cash from the sale of the company’s Sensors & Controls
business as well as income from continuing operations, partially offset
by the cash used for stock repurchases. During the second quarter of
2006, the company repurchased 33 million shares of TI common stock for
$1.04 billion and paid $47 million in dividends. Also in the quarter,
$275 million of variable-rate bank notes were prepaid.
Capital Spending and Depreciation
Capital expenditures were $374 million. This was a decrease of $34 million
from the prior quarter and an increase of $127 million from the year-ago
quarter. TI’s capital expenditures in the second quarter were
primarily for equipment used in the assembly and test of semiconductors.
Depreciation was $267 million, a decrease of $3 million from the prior
quarter and a decrease of $70 million from the year-ago quarter.
Accounts Receivable and Inventories
Accounts receivable were $1.93 billion. This was an increase of $131
million from the prior quarter due to seasonally higher receivables
for calculators in the E&PS segment, and an increase of $191 million
from the year-ago quarter reflecting higher revenue. Days sales outstanding
were 47 at the end of the second quarter compared with 49 at the end
of the prior quarter and 53 at the end of the year-ago quarter.
Inventory was $1.34 billion at the end of the second quarter. This was
an increase of $89 million from the prior quarter as the company built
inventory to support expected product shipments in the second half of
the year. Compared with the year-ago quarter, inventory increased $219
million. Days of inventory at the end of the second quarter were 67
compared with 67 at the end of the prior quarter and 65 at the end of
the year-ago quarter.
Outlook
TI intends to provide a mid-quarter update to its financial outlook
on September 11, 2006, 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 2006, TI expects revenue from continuing operations
to be in the following ranges:
- Total TI, $3.63 billion to $3.95 billion;
- Semiconductor, $3.45 billion to $3.75 billion; and
- Educational & Productivity Solutions, $180 million to $200 million.
TI expects earnings per share from continuing operations to be in the
range of $0.42 to $0.48.
The effective tax rate for continuing operations in 2006 is expected to
be about 30 percent, unchanged from the prior estimate. This tax 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. Additionally in
2006 for continuing operations, TI still expects expense for R&D to
be about $2.2 billion and capital expenditures to be about $1.3 billion.
Depreciation is expected to be about $1.05 billion, up slightly from the
prior estimate.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except per-share amounts)
For Three Months Ended
June 30, Mar. 31, June 30,
2006 2006 2005
Net revenue $ 3,697 $ 3,334 $ 2,971
Cost of revenue (COR) 1,790 1,662 1,545
Gross profit 1,907 1,672 1,426
Gross profit % of revenue 51.6% 50.1% 48.0%
Research and development (R&D) 536 533 485
R&D % of revenue 14.5% 16.0% 16.3%
Selling, general and administrative (SG&A) 418 421 339
SG&A % of revenue 11.3% 12.6% 11.4%
Total operating costs and expenses 2,744 2,616 2,369
Profit from operations 953 718 602
Operating profit % of revenue 25.8% 21.5% 20.3%
Other income (expense) net 88 52 56
Interest expense on loans 2 3 2
Income from continuing operations before
income taxes 1,039 767 656
Provision for income taxes 300 225 72
Income from continuing operations 739 542 584
Income from discontinued operations,
net of income taxes 1,648 43 44
Net income $ 2,387 $ 585 $ 628
Basic earnings per common share:
Income from continuing operations $ .48 $ .34 $ .36
Net income $ 1.54 $ .37 $ .38
Diluted earnings per common share:
Income from continuing operations $ .47 $ .33 $ .35
Net income $ 1.50 $ .36 $ .38
Average shares outstanding (millions):
Basic 1,553 1,585 1,633
Diluted 1,586 1,618 1,669
Cash dividends declared per share of
common stock $ .030 $ .030 $ .025
Stock-based compensation expense
included in continuing operations:
COR 16 18 ---
R&D 25 28 ---
SG&A 43 45 5
Profit from operations 84 91 5
% of revenue 2.3% 2.7% 0.2%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
June 30, Mar. 31, June 30,
2006 2006 2005
Assets
Current assets:
Cash and cash equivalents $ 1,678 $ 722 $ 2,128
Short-term investments 3,992 2,942 2,345
Accounts receivable, net of
allowances of ($28), ($32) and
($34) 1,929 1,798 1,738
Raw materials 108 91 75
Work in process 818 819 686
Finished goods 409 336 355
Inventories 1,335 1,246 1,116
Deferred income taxes 632 626 597
Prepaid expenses and other current
assets 215 248 224
Assets of discontinued operations 11 516 452
Total current assets 9,792 8,098 8,600
Property, plant and equipment at cost 8,406 8,442 8,798
Less accumulated depreciation (4,422) (4,574) (5,172)
Property, plant and equipment, net 3,984 3,868 3,626
Equity and debt investments 253 240 265
Goodwill 792 793 677
Acquisition-related intangibles 117 131 84
Deferred income taxes 428 390 568
Capitalized software licenses, net 197 222 285
Prepaid retirement costs 219 184 232
Other assets 146 112 149
Total assets $15,928 $14,038 $14,486
Liabilities and Stockholders'
Equity
Current liabilities:
Loans payable and current portion
of long-term debt $ 43 $ --- $ 306
Accounts payable 788 720 575
Accrued expenses and other
liabilities 994 895 811
Income taxes payable 870 280 248
Accrued profit sharing and retirement 77 43 62
Liabilities of discontinued operations 11 157 115
Total current liabilities 2,783 2,095 2,117
Long-term debt --- 318 55
Accrued retirement costs 103 116 526
Deferred income taxes 15 17 36
Deferred credits and other liabilities 239 254 289
Total liabilities 3,140 2,800 3,023
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, 2006 -- 1,739,086,194;
March 31, 2006 -- 1,739,070,044;
June 30, 2005 -- 1,738,514,238 1,739 1,739 1,739
Paid-in capital 779 744 611
Retained earnings 16,271 13,930 12,197
Less treasury common stock at cost:
Shares: June 30, 2006 --
206,501,103; March 31, 2006 --
181,032,577; June 30, 2005 --
115,461,457 (5,911) (5,092) (2,908)
Accumulated other comprehensive income
(loss):
Minimum pension liability (66) (65) (163)
Unrealized gains (losses) on
available-for-sale investments (23) (17) (11)
Unearned compensation (1) (1) (2)
Total stockholders' equity 12,788 11,238 11,463
Total liabilities and stockholders'
equity $15,928 $14,038 $14,486
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of dollars)
For Three Months Ended
June 30, Mar. 31, June 30,
2006 2006 2005
Cash flows from operating activities:
Net income $ 2,387 $ 585 $ 628
Adjustments to reconcile net income
to cash provided by operating
activities of continuing operations:
Less income from discontinued
operations (1,648) (43) (44)
Depreciation 267 270 337
Stock-based compensation 84 91 5
Amortization of capitalized software 29 30 31
Amortization of acquisition-related
intangibles 15 16 15
Deferred income taxes (41) (36) (174)
Increase/(decrease) from changes in:
Accounts receivable (138) (144) (220)
Inventories (89) (57) 40
Prepaid expenses and other current
assets 26 (111) 112
Accounts payable and accrued expenses 129 (106) 11
Income taxes payable (334) 151 12
Accrued profit sharing and retirement 35 (78) 29
Noncurrent accrued retirement costs (45) (6) 5
Other (10) (40) (23)
Net cash provided by operating activities
of continuing operations 667 522 764
Cash flows from investing activities:
Additions to property, plant and
equipment (374) (408) (247)
Proceeds from sales of assets 2,982 4 ---
Purchases of cash investments (3,063) (1,153) (248)
Sales and maturities of cash
investments 1,983 2,341 1,192
Purchases of equity investments (17) (5) (6)
Sales of equity and debt investments 2 7 ---
Acquisition of businesses,
net of cash acquired (28) (177) ---
Net cash provided by investing
activities of continuing operations 1,485 609 691
Cash flows from financing activities:
Payments on loans and long-term debt (275) (311) (10)
Dividends paid on common stock (47) (48) (41)
Sales and other common stock
transactions 137 142 116
Excess tax benefit from stock
option exercises 57 7 ---
Stock repurchases (1,037) (1,440) (1,292)
Net cash used in financing activities
of continuing operations (1,165) (1,650) (1,227)
Cash flows from discontinued operations:
Operating activities (28) 35 62
Investing activities (6) (10) (22)
Net cash provided by (used in)
discontinued operations (34) 25 40
Effect of exchange rate changes on cash 3 2 9
Net increase/(decrease) in cash and
cash equivalents 956 (492) 277
Cash and cash equivalents,
beginning of period 722 1,214 1,851
Cash and cash equivalents,
end of period $ 1,678 $ 722 $ 2,128
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current presentation.
Business Segment Net Revenue
(In millions of dollars)
For Three Months Ended
June 30, Mar. 31, June 30,
2006 2006 2005
Semiconductor $ 3,505 $ 3,262 $ 2,791
Education Technology 192 74 181
Intersegment eliminations --- (2) (1)
Total net revenue $ 3,697 $ 3,334 $ 2,971
Business Segment Profit (Loss)
(In millions of dollars)
For Three Months Ended
June 30, Mar. 31, June 30,
2006 2006 2005
Semiconductor* $ 1,032 $ 883 $ 597
Education Technology 84 13 79
Corporate** (163) (178) (74)
Profit from operations $ 953 $ 718 $ 602
* Semiconductor profit from operations includes a benefit of $57 for a
state sales tax refund and $60 from the royalty settlement in the second
quarter of 2006.
** Corporate includes stock-based compensation expense of $84, $91 and
$5 respectively.
The royalty settlement and sales tax refund benefit included in TI's
second quarter 2006 results are detailed as follows. All items are in the
Semiconductor segment results except the $20 million in Other income (expense)
net, which is in Corporate.
Royalty Settlement Sales Tax Refund
Orders $ 70 $ ---
Net revenue 70 ---
Cost of revenue 10 (31)
Gross profit 60 31
R&D --- (21)
SG&A --- (5)
Profit from operations 60 57
Other income (expense) net --- 20
Income from continuing operations
before income taxes 60 77
Semiconductor
- Revenue in the second quarter was $3.51 billion. This was an increase
of 7 percent from the prior quarter primarily due to demand for the
company’s analog products and a $70 million royalty settlement
received in the second quarter from Conexant Systems, Inc. It was also
an increase of 26 percent from the year-ago quarter primarily due to
demand for the company’s DSP and analog products.
- Analog revenue was up 8 percent from the prior quarter and increased
23 percent from the year-ago quarter primarily due to demand for
the company’s high-performance analog products and analog
products used in broadband applications. Revenue from high-performance
analog products grew 5 percent from the prior quarter and 32 percent
from a year ago.
- DSP revenue was about even with the prior quarter, and was up
24 percent from the year-ago quarter primarily due to higher demand
from the wireless market.
- TI’s remaining Semiconductor revenue increased 17 percent
from the prior quarter and 31 percent from a year ago due to the
royalty settlement and broad-based growth in demand for DLP products,
RISC microprocessors, standard logic products and microcontrollers.
- Gross profit was $1.82 billion, or 51.8 percent of revenue. This was
an increase of $157 million from the prior quarter and an increase of
$490 million from the year-ago quarter. The increases over both periods
were due to higher revenue.
- Operating profit was $1.03 billion, or 29.4 percent of revenue. This
was an increase of $149 million from the prior quarter and an increase
of $435 million from the year-ago quarter. The increases over both periods
were due to higher gross profit.
- Semiconductor orders were $3.75 billion. This was an increase of
10 percent from the prior quarter primarily due to demand for analog
products, and an increase of 26 percent from a year ago due to strong
demand for analog and DSP products.
Semiconductor Highlights
- TI is increasing its wireless design presence in India with a new
R&D center in Chennai, focusing on a platform of open-standard technologies
that span TI’s wireless product portfolio.
- TI unveiled details of its 45-nanometer manufacturing process that
uses immersion lithography to double the number of chips per wafer,
increase performance by 30 percent and reduce power consumption by 40
percent, providing customers early access to faster, smaller and lower
power products.
- TI began volume production of a high-performance analog power management
chip that extends battery life in smartphones, digital still cameras
and other single-cell lithium-ion-powered portable multimedia devices,
by delivering 96 percent efficiency over a wide range of input voltages.
Educational & Productivity Solutions
- Revenue in the second quarter was $192 million. This was an increase
of $118 million from the prior quarter as retailers began to stock product
in preparation for the upcoming back-to-school season. It was also an
increase of $11 million from the year-ago quarter due to higher demand
from instructional dealers that supply school districts.
- Gross profit was $119 million, or 61.9 percent of revenue. Gross
profit increased $78 million from the prior quarter and $8 million from
the year-ago quarter primarily due to higher revenue.
- Operating profit was $84 million, or 43.9 percent of revenue. This
was an increase of $71 million from the prior quarter and $5 million
from the year-ago quarter. The increases were due to higher gross profit.
###
“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;
- 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 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 includes the Educational &
Productivity Solutions 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 www.ti.com.
TI Trademarks:
DLP
Other trademarks are the property of their respective owners.
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