- Record Revenue, Up 11% Sequentially, 10% from Year Ago
- Record Gross and Operating Margins Despite Reduction in
Inventory
- Record Operating Cash Flow of $1.51 Billion
- EPS of $0.38 Includes $0.03 Stock-Based Compensation Expense
and $0.01 Higher Taxes
- Orders Up 10% Sequentially, 24% from Year Ago
• Download
Financials in MS Excel Format (47KB)
• Non-GAAP
Financial Measures Reconciliation
DALLAS (October 24, 2005) – Texas Instruments Incorporated (TI)
(NYSE: TXN) today reported record quarterly revenue of $3.59 billion,
an increase of 11 percent sequentially and 10 percent over the third
quarter of last year. Growth was driven by the company’s Semiconductor
segment, which was up 13 percent sequentially and 13 percent from a
year ago with particularly strong demand for digital signal processors
(DSPs) and analog chips that are used in a variety of communications
and entertainment electronics.
Earnings per share (EPS) in the third quarter were $0.38. As previously
announced, the company began expensing stock options in the third quarter,
and as a result, EPS included $0.03 of additional expense for stock-based
compensation. For comparison purposes, it is important to note that
equivalent stock-based compensation expense was not reflected in any
prior quarterly period. EPS also included $0.01 for higher-than-anticipated
taxes in the quarter.
In addition to record revenue, TI reached new highs for gross margin at
49.3 percent, for operating margin at 22.7 percent, and for operating
cash flow at $1.51 billion. “This performance is especially significant
as semiconductor inventories declined at TI and distributors,” said
Rich Templeton, president and chief executive officer.
“Additionally, TI continued to gain share in areas with sustainable
long-term growth,” he said. “Wireless revenue grew 16 percent
sequentially and 20 percent from a year ago; high-performance analog revenue
grew 10 percent sequentially and 16 percent from a year ago; and DLP ®
product revenue grew 41 percent sequentially and was even with a year
ago.
“TI continues to hold leadership positions in semiconductors for
both the high and low ends of the cell phone market. For solutions used
in feature-rich 3G UMTS cell phones, revenue remains on track to exceed
$1 billion in 2005. In low-priced cell phones, TI’s solutions are
penetrating markets such as China, India, Brazil and Africa, changing
the way people communicate.
“In high-performance analog, our leadership products in data converters,
power management and amplifiers continue to attract new customers and
yield solid results. And in DLP products, we recovered from an inventory
correction in the first half of the year and moved into a strong third
quarter,” Templeton said.
“In summary, this was an excellent quarter. We are fortunate to
have a unique position with leadership in multiple markets and a business
model that allows us to invest in critical R&D yet generate high levels
of operating cash flow. We remain focused on making our customers successful
and on returning value to our shareholders,” Templeton concluded.
Gross Profit
In the third quarter, TI’s gross profit was a record $1.77 billion,
or 49.3 percent of revenue. This included the impact of $16 million,
or 0.5 percent of revenue, of stock-based compensation expense. Gross
profit increased $250 million sequentially and $282 million from a year
ago due to higher gross profit in the company’s Semiconductor
segment.
Operating Expenses
Research and development (R&D) expense of $527 million, or 14.7
percent of revenue, increased $34 million sequentially and $44 million
from a year ago primarily due to stock-based compensation expense, which
was $26 million in the quarter. The change from a year ago also included
higher product development expenses, primarily for analog and DSP semiconductors
that go into cell phones.
Selling, general and administrative (SG&A) expense of $429 million,
or 12.0 percent of revenue, increased $70 million sequentially and $80
million from a year ago primarily due to compensation expense as well
as higher marketing expense. Stock-based compensation expense in SG&A
was $40 million in the third quarter.
Operating Profit
Operating profit of $815 million and operating margin of 22.7 percent
of revenue were all-time highs for the company. Operating profit increased
$146 million sequentially and $158 million from a year ago due to higher
gross profit. Operating profit reflected the impact of $82 million,
or 2.3 percent of revenue, of stock-based compensation expense, which
was included in corporate activities.
Other Income (Expense) Net (OI&E)
OI&E of $49 million decreased $7 million sequentially and $13 million
from a year ago primarily due to favorable items included in the previous
periods. OI&E in the second quarter included a tax interest benefit,
and the year-ago quarter included a significant favorable settlement
with the Italian government regarding TI’s former memory-chip
operations.
Net Income
Net income was $631 million. EPS of $0.38, which includes $0.03 of stock-based
compensation expense and $0.01 of higher-than-anticipated taxes, was
even with the second quarter. EPS in the second quarter included $0.06
of nonrecurring tax-related benefits.
Compared with a year ago, EPS increased $0.06 due to higher operating
profit.
The 27 percent effective tax rate for the third quarter was higher than
the previously expected 24 percent rate due to a revision in the estimated
annual effective tax rate and the associated cumulative adjustment
Orders
TI orders of $3.74 billion increased $351 million sequentially and $721
million from a year ago due to higher demand for Semiconductor products.
Cash
Cash flow from operations of $1.51 billion increased $687 million sequentially
and $572 million from a year ago.
At the end of the third quarter, total cash (cash and cash equivalents
plus short-term investments and long-term cash investments) was $5.25
billion, up $773 million from the end of the previous quarter and down
$366 million from the end of the year-ago period. During the quarter,
the company used $496 million in cash to repurchase 15 million shares
of TI common stock. Over the past 12 months, TI has repurchased 140
million shares of common stock and paid $169 million in dividends.
Capital Spending and Depreciation
Capital expenditures of $450 million increased $193 million sequentially
and $120 million from a year ago. TI’s capital expenditures in
the third quarter were primarily for assembly and test equipment, advanced
wafer fabrication equipment and building the company’s new 300-millimeter
manufacturing facility in Richardson, Texas.
Depreciation of $339 million decreased $6 million sequentially and $39
million from a year ago.
Accounts Receivable and Inventories
Accounts receivable of $1.92 billion at the end of the third quarter
increased $13 million sequentially due to higher revenue, partially
offset by seasonally lower receivables in the company’s E&PS
business. Accounts receivable decreased $50 million from the end of
the year-ago quarter. Days sales outstanding were 48 at the end of the
third quarter compared with 53 at the end of the previous quarter and
54 at the end of the year-ago quarter.
Inventories of $1.16 billion at the end of the third quarter decreased
$44 million sequentially due to stronger-than-expected shipments, which
reduced inventory to less-than-desired levels. Inventory decreased $198
million from a year ago when inventories were higher than desired. Days
of inventory at the end of the third quarter were 57 compared with 63
at the end of the previous quarter and 69 at the end of the year-ago
quarter.
Outlook
TI intends to provide a mid-quarter update to its financial
outlook on December 7, 2005, by issuing a press release and holding
a conference call. Both will be available on the company’s web
site.
For the fourth quarter of 2005, TI expects revenue to be in the following
ranges:
-
Total TI, $3.425 billion to $3.715 billion;
-
Semiconductor, $3.075 billion to $3.325 billion;
-
Sensors & Controls, $290 million to $310 million; and
-
E&PS, $60 million to $80 million
TI expects EPS to be in the range of $0.36 to $0.40. This estimate
includes about $0.03 for stock-based compensation expense.
For 2005, TI expects R&D expense of about $2.1 billion, capital
expenditures of about $1.3 billion and depreciation of about $1.4 billion.
The estimated annual effective tax rate for 2005 is about 25 percent.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(In millions, except per-share amounts)
For Three Months Ended
Sept. 30 June 30 Sept. 30
2005 2005 2004
Net revenue $ 3590 $ 3239 $ 3250
Cost of revenue (COR) 1819 1718 1761
Gross profit 1771 1521 1489
Gross profit % of revenue 49.3% 47.0% 45.8%
Research and development (R&D) 527 493 483
R&D % of revenue 14.7% 15.2% 14.9%
Selling, general and
administrative (SG&A) 429 359 349
SG&A % of revenue 12.0% 11.1% 10.7%
Total operating expenses 956 852 832
Profit from operations 815 669 657
Operating profit % of revenue 22.7% 20.6% 20.2%
Other income (expense) net 49 56 62
Interest on loans 2 2 4
Income before income taxes 862 723 715
Provision for income taxes 231 95 152
Net income $ 631 $ 628 $ 563
Basic earnings per common share $ .39 $ .38 $ .33
Diluted earnings per common
share $ .38 $ .38 $ .32
Average shares outstanding,
basic 1624 1633 1730
Average shares outstanding,
diluted 1663 1669 1759
Cash dividends declared per
share of common stock $ .025 $ .025 $ .021
Stock-based compensation expense included in items above:
Sept. 30 June 30 Sept. 30
2005 2005 2004
COR $ 16 --- ---
% of revenue 0.5% --- ---
R&D 26 --- ---
% of revenue 0.7% --- ---
SG&A 40 $ 5 $ 5
% of revenue 1.1% 0.2% 0.2%
Profit from operations 82 5 5
% of revenue 2.3% 0.2% 0.2%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions of dollars)
Sept. 30 June 30 Sept. 30
2005 2005 2004
Assets
Cash and cash equivalents $ 1946 $ 2133 $ 1674
Short-term investments 3305 2345 2312
Accounts receivable, net of
allowances for customer
adjustments and doubtful
accounts of $48 million at
September 30, 2005,
$39 million at June 30, 2005,
and $45 million at
September 30, 2004 1915 1902 1965
Raw materials 114 116 122
Work in process 719 700 885
Finished goods 325 386 349
Inventories 1158 1202 1356
Deferred income taxes 581 597 451
Prepaid expenses and other
current assets 226 320 541
Total current assets 9131 8499 8299
Property, plant and equipment
at cost 9189 9323 9830
Less accumulated depreciation (5324) (5566) (5711)
Property, plant and
equipment, net 3865 3757 4119
Long-term cash investments --- --- 1631
Equity and debt investments 234 265 248
Goodwill 708 708 693
Acquisition-related intangibles 76 86 125
Deferred income taxes 413 568 476
Capitalized software
licenses, net 262 288 310
Prepaid retirement costs 224 246 154
Other assets 71 69 82
Total assets $14984 $14486 $16137
Liabilities and Stockholders'
Equity
Loans payable and current
portion long-term debt $ 303 $ 306 $ 10
Accounts payable 796 614 664
Accrued expenses and other
liabilities 962 865 886
Income taxes payable 82 255 124
Profit sharing contributions
and accrued retirement 103 70 208
Total current liabilities 2246 2110 1892
Long-term debt 55 55 373
Accrued retirement costs 510 534 591
Deferred income taxes 33 35 63
Deferred credits and other
liabilities 267 289 322
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:
September 30, 2005 --
1,738,650,318; June 30, 2005 --
1,738,514,238; September 30,
2004 -- 1,738,141,785 1739 1739 1738
Paid-in capital 674 611 789
Retained earnings 12787 12197 10795
Less treasury common stock at
cost:
Shares: September 30, 2005 --
120,597,527; June 30,
2005 -- 115,461,457;
September 30, 2004 --
10,216,953 (3152) (2908) (248)
Accumulated other comprehensive
income (loss):
Minimum pension liability (158) (163) (155)
Unrealized holding gains (losses)
on investments (15) (11) (15)
Deferred compensation (2) (2) (8)
Total stockholders' equity 11873 11463 12896
Total liabilities and
stockholders' equity $14984 $14486 $16137
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Statements of Cash Flows
(In millions of dollars)
For Three Months Ended
Sept. 30 June 30 Sept. 30
2005 2005 2004
Cash flows from operating
activities:
Net income $ 631 $ 628 $ 563
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 339 345 378
Stock-based compensation 82 5 5
Amortization of acquisition-
related costs 13 15 16
(Gains)/losses on investments --- 2 4
(Gains)/losses on sales of assets --- (1) ---
Deferred income taxes 110 (174) 41
Other 80 42 43
(Increase) decrease from
change in:
Accounts receivable (12) (212) (37)
Inventories 44 43 (71)
Prepaid expenses and other
current assets 93 86 (50)
Accounts payable and accrued
expenses 248 1 (53)
Income taxes payable (154) 10 88
Accrued profit sharing and
retirement 32 31 26
Noncurrent accrued retirement
costs 8 6 (11)
Net cash provided by operating
activities 1514 827 942
Cash flows from investing
activities:
Additions to property, plant
and equipment (450) (257) (330)
Sales of assets --- 5 ---
Purchases of cash investments (2095) (248) (911)
Sales and maturities of cash
investments 1147 1192 883
Purchases of equity investments (5) (6) (2)
Sales of equity and debt
investments 39 --- 1
Acquisition of businesses, net
of cash acquired --- (18) ---
Net cash provided by (used in)
investing activities (1364) 668 (359)
Cash flows from financing
activities:
Payments on loans payable and
long-term debt --- (10) (405)
Dividends paid on common stock (41) (41) (36)
Sales and other common stock
transactions 160 116 5
Excess tax benefit from
stock-option exercises 42 --- ---
Common stock repurchases (496) (1292) (98)
Net cash used in financing
activities (335) (1227) (534)
Effect of exchange rate changes
on cash (2) 9 2
Net increase (decrease) in cash
and cash equivalents (187) 277 51
Cash and cash equivalents at
beginning of period 2133 1856 1623
Cash and cash equivalents at
end of period $ 1946 $ 2133 $ 1674
Business Segment Net Revenue
(In millions of dollars)
For Three Months Ended
Sept. 30 June 30 Sept. 30
2005 2005 2004
Semiconductor
Trade $ 3134 $ 2764 $ 2785
Intersegment 1 1 1
3135 2765 2786
Sensors & Controls
Trade 278 294 275
Intersegment 2 1 1
280 295 276
Educational & Productivity
Solutions
Trade 177 181 190
Intersegment Eliminations (2) (2) (2)
Total net revenue $ 3590 $ 3239 $ 3250
Business Segment Profit (Loss)
(In millions of dollars)
For Three Months Ended
Sept. 30 June 30 Sept. 30
2005 2005 2004
Semiconductor $ 835 $ 594 $ 582
Sensors & Controls 60 72 66
Educational & Productivity
Solutions 79 79 83
Corporate * (145) (57) (53)
Charges/gains and acquisition-
related amortization (14) (19) (21)
Profit from operations $ 815 $ 669 $ 657
* Profit from operations includes, in millions of dollars, stock-based
compensation expense of $82, $5 and $5 for the third quarter and
second quarter of 2005 and the third quarter of 2004.
Semiconductor
- Semiconductor revenue of $3.13 billion increased $370 million sequentially,
or 13 percent, due to strong growth in demand for the company’s
DSP, analog and DLP products. Compared with a year ago, revenue increased
13 percent due to higher demand for DSP and analog products.
- Gross profit was $1.60 billion, or 50.9 percent of revenue. Gross
profit increased $280 million sequentially and $308 million from a year
ago primarily due to higher revenue plus manufacturing cost reductions
and higher utilization of manufacturing assets.
- Operating profit was $835 million, or 26.6 percent of revenue, up
$241 million sequentially and $253 million from a year ago due to higher
gross profit.
- Analog revenue increased 13 percent sequentially reflecting strong
demand for high-performance analog products, as well as wireless analog
products. Compared with a year ago, analog revenue increased 11 percent
primarily due to strength in high-performance analog products. High-performance
analog revenue grew 10 percent sequentially and 16 percent from a year
ago.
- DSP revenue increased 16 percent sequentially and 20 percent from
a year ago primarily due to higher demand from the wireless market.
- TI’s remaining Semiconductor revenue grew 11 percent sequentially
and 4 percent from a year ago. The sequential increase was primarily
due to increased DLP product revenue and, to a lesser extent, standard
logic and royalty revenue. Microcontroller and RISC microprocessor revenue
was about the same as the second quarter. From a year ago, RISC microprocessor,
royalty, microcontroller and standard logic revenue increased. DLP product
revenue was about the same as a year ago.
- Semiconductor orders of $3.32 billion increased 12 percent sequentially
primarily due to strong demand for DSP and analog products used in cell
phones, as well as demand for high-performance analog and other DSP
products. Compared with a year ago, orders increased 26 percent due
to strong demand across a broad base of the company’s products.
3Q Semiconductor Highlights
- TI introduced DaVinci™, its most advanced semiconductor technology
for new generations of digital video products. A DSP-based solution
with integrated processors, software and tools, DaVinci-enabled solutions
are under way for products such as digital cameras, automotive infotainment
products, portable media players, set-top boxes and video security systems.
Additionally, TI released a suite of companion analog products to help
customers quickly introduce their DaVinci-based systems into the market.
- Samsung Electronics selected TI's OMAP™ platform and Bluetooth®
solutions for its first Symbian OS™ and Series 60-based smartphones.
- TI announced it has achieved cumulative shipments of more than 150
million Voice over IP (VoIP) ports, retaining its leadership in the
VoIP market.
Sensors & Controls
- Sensors & Controls revenue was $280 million, down $15 million
sequentially primarily due to lower seasonal demand for controls products
and up $4 million from a year ago due to higher demand for automotive
sensors products.
- Gross profit was $93 million, or 33.1 percent of revenue, down $15
million sequentially due to lower revenue and higher manufacturing costs,
and down $9 million from a year ago primarily due to higher manufacturing
costs, including start-up expenses for new products.
- Operating profit was $60 million, or 21.4 percent of revenue, down
$12 million sequentially and down $6 million from a year ago due to
lower gross profit.
Educational & Productivity Solutions (E&PS)
- E&PS revenue was $177 million, down $4 million sequentially and
down $13 million from a year ago due to lower sales of graphing calculators.
- Gross profit was $110 million, or 62.1 percent of revenue, about even
sequentially and down $4 million from a year ago primarily due to lower
revenue.
- Operating profit was $79 million, or 44.7 percent of revenue, even
sequentially and down $4 million from a year ago 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
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, 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 “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.
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
DaVinci
OMAP
Other trademarks are the property of their respective owners.
Back to Top |
