- TI Revenue Grows to $3.76 Billion
- $0.45 EPS from Continuing Operations
- High-Performance Analog Revenue Up 37% from a Year Ago
- Strong Profitability at 51.4% Gross Margin, 24.7% Operating
Margin
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Financials in MS Excel Format (56KB)
• Non-GAAP
Financial Measure 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 (October 23, 2006) – Texas Instruments Incorporated (TI)
(NYSE: TXN) today reported third-quarter 2006 revenue of $3.76 billion.
Revenue grew 2 percent compared with the second quarter, which included
a $70 million royalty settlement, and increased 13 percent from the
same quarter a year ago. The increases were primarily due to continued
strong demand for the company’s high-performance analog and DSP
products.
Earnings per share (EPS) from continuing operations were $0.45. Second-quarter
EPS of $0.47 included a benefit of $0.03 from a sales tax refund and
a benefit of $0.02 from a royalty settlement. EPS grew 25 percent from
$0.36 in the year-ago quarter. EPS in each of these periods included
an expense of $0.03 for stock-based compensation.
“The third quarter was one of the best in TI’s history,”
said Rich Templeton, TI president and chief executive officer. “Our
revenue once again set an all-time record as our share continued to
climb in our core markets. Our strong gross and operating margins reflected
the value of our product portfolio, rich in analog and DSP products.
“At the same time, orders declined, leading us to expect that fourth-quarter
Semiconductor growth will be below the seasonal average. A couple of factors
are influencing this. First, we believe customers have broadly replenished
their own inventory and are confident in operating with lower backlog
now that chip supply has improved. The second factor is wireless, where
we expect that unit mix will be more weighted toward low-priced cell phones
and inventory correction will continue in Japan. Even with a less-than-seasonal
fourth quarter, we expect the growth rate of our Semiconductor business
to be in the upper teens for the year,” Templeton said.
“In the near term, we are managing inventory and tightening expenses.
We have a responsive manufacturing model and we believe distributor inventory
levels remain lean, both of which should serve us well. We are competing
from a position of strength with leading products and with customers who
are gaining share.”
Gross Profit
TI’s gross profit was $1.93 billion, or 51.4 percent of
revenue. This was an increase of $25 million from the prior quarter and
an increase of $242 million from the year-ago quarter. The increases were
due to higher revenue in the company’s Semiconductor segment.
Operating Expenses
Research and development (R&D) expense was $570 million, or 15.2 percent
of revenue. R&D expense was $34 million higher than the prior quarter
primarily because the second quarter included a sales tax refund. R&D
expense increased $49 million from the year-ago quarter due to higher
investment in new semiconductor technology, particularly for wireless
applications.
Selling, general and administrative (SG&A) expense was $432 million,
or 11.5 percent of revenue. SG&A expense increased $14 million from
the prior quarter. This expense was $24 million higher than a year ago
primarily because of increased consumer advertising of DLP® technology
for high-definition televisions.
Operating Profit
Operating profit was $930 million, or 24.7 percent of revenue. This was
a decrease of $23 million from the prior quarter, which included a $117
million operating profit benefit associated with a royalty settlement
and a sales tax refund. Operating profit increased $169 million from the
year-ago quarter due to higher gross profit in the Semiconductor segment.
Total stock-based compensation expense of $79 million, or 2.1 percent
of revenue, was included in Corporate in the third quarter. This was about
the same as in the comparison periods.
Other Income (Expense) Net (OI&E)
OI&E of $55 million decreased $33 million from the prior quarter,
which included a $20 million benefit from a sales tax refund. OI&E
increased $6 million from the year-ago quarter.
Net Income
Income from continuing operations was $686 million, or $0.45 per share.
Net income of $702 million includes income from continuing and discontinued
operations. In the prior quarter, net income 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 $3.43 billion. This was a decrease of $478 million from
the prior quarter and a decrease of $41 million from the year-ago quarter.
The decreases were due to lower orders in the company’s Semiconductor
segment.
Cash
Cash flow from operations was $419 million. This was a decline of $248
million from the prior quarter.
At the end of the third quarter, total cash (cash and cash equivalents
plus short-term investments) was $4.18 billion, down $1.49 billion from
the end of the prior quarter. During the third quarter, the company used
$1.69 billion to repurchase 56 million shares and paid $46 million in
dividends. During the past four quarters, the company used $5.04 billion
to repurchase 163 million shares, reducing shares outstanding by more
than 8 percent.
Capital Spending and Depreciation
Capital expenditures were $276 million. This was a decrease of $98 million
from the prior quarter and a decrease of $164 million from the year-ago
quarter. TI’s capital expenditures in the third quarter were primarily
for equipment used in the assembly and test of semiconductors.
Depreciation was $266 million, about the same as the prior quarter. Depreciation
decreased $66 million from the year-ago quarter.
Accounts Receivable and Inventories
Accounts receivable were $2.09 billion. This was an increase of $160 million
from the prior quarter primarily due to higher revenue in the month of
September versus the month of June. Accounts receivable increased $333
million from the year-ago quarter primarily due to higher revenue. Days
sales outstanding were 50 at the end of the third quarter compared with
47 at the end of the prior and the year-ago quarters.
Inventory of $1.49 billion at the end of the third quarter was above desired
levels. This was an increase of $156 million from the prior quarter as
the company built inventory to support expected product shipments, especially
for cell phones. To a lesser degree, the company also began to rebuild
needed work-in-process inventory that previously had been depleted for
catalog product lines such as high-performance analog. Compared with the
year-ago quarter, when inventory was below desired levels, inventory increased
$417 million. Days of inventory at the end of the third quarter were 73
compared with 67 at the end of the prior quarter and 59 at the end of
the year-ago quarter.
Outlook
TI intends to provide a mid-quarter update to its financial outlook on
December 11, 2006, 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 2006, TI expects revenue from continuing operations
to be in the following ranges:
-
Total TI, $3.46 billion to $3.75 billion;
-
Semiconductor, $3.39 billion to $3.66 billion; and
-
Educational & Productivity Solutions, $70 million to $90 million.
TI expects earnings per share from continuing operations to be in the
range of $0.40 to $0.46.
In 2006 for continuing operations, TI expects: the annual effective tax
rate to be about 29 percent compared with its prior expectation of about
30 percent; expense for R&D to be about $2.2 billion; capital expenditures
to be about $1.3 billion; and depreciation to be about $1.05 billion.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except per-share amounts)
For Three Months Ended
Sept. 30, June 30, Sept. 30,
2006 2006 2005
Net revenue $ 3,761 $ 3,697 $ 3,339
Cost of revenue (COR) 1,829 1,790 1,649
Gross profit 1,932 1,907 1,690
Gross profit % of revenue 51.4% 51.6% 50.6%
Research and development (R&D) 570 536 521
R&D % of revenue 15.2% 14.5% 15.6%
Selling, general and administrative (SG&A) 432 418 408
SG&A % of revenue 11.5% 11.3% 12.2%
Total operating costs and expenses 2,831 2,744 2,578
Profit from operations 930 953 761
Operating profit % of revenue 24.7% 25.8% 22.8%
Other income (expense) net 55 88 49
Interest expense on loans 1 2 2
Income from continuing operations
before income taxes 984 1,039 808
Provision for income taxes 298 300 212
Income from continuing operations 686 739 596
Income from discontinued operations,
net of income taxes 16 1,648 35
Net income $ 702 $ 2,387 $ 631
Basic earnings per common share:
Income from continuing operations $ .46 $ .48 $ .37
Net income $ .47 $ 1.54 $ .39
Diluted earnings per common share:
Income from continuing operations $ .45 $ .47 $ .36
Net income $ .46 $ 1.50 $ .38
Average shares outstanding (millions):
Basic 1,506 1,553 1,624
Diluted 1,537 1,586 1,663
Cash dividends declared per share
of common stock $ .030 $ .030 $ .025
Stock-based compensation expense
included in continuing operations:
COR $ 15 $ 16 $ 15
R&D 24 25 26
SG&A 40 43 39
Profit from operations $ 79 $ 84 $ 80
% of revenue 2.1% 2.3% 2.4%
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
Sept. 30, June 30, Sept. 30,
2006 2006 2005
Assets
Current assets:
Cash and cash equivalents $ 1,430 $ 1,678 $ 1,941
Short-term investments 2,754 3,992 3,305
Accounts receivable, net of
allowances of ($29), ($28) and ($42) 2,089 1,929 1,756
Raw materials 117 108 74
Work in process 946 818 705
Finished goods 428 409 295
Inventories 1,491 1,335 1,074
Deferred income taxes 666 632 581
Prepaid expenses and other
current assets 190 215 166
Assets of discontinued operations 1 11 449
Total current assets 8,621 9,792 9,272
Property, plant and equipment at cost 7,890 8,406 8,661
Less accumulated depreciation (3,901) (4,422) (4,929)
Property, plant and equipment, net 3,989 3,984 3,732
Equity and debt investments 270 253 234
Goodwill 792 792 677
Acquisition-related intangibles 131 117 72
Deferred income taxes 411 428 413
Capitalized software licenses, net 175 197 259
Prepaid retirement costs 308 219 210
Other assets 88 146 115
Total assets $14,785 $15,928 $14,984
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current
portion of long-term debt $ 43 $ 43 $ 303
Accounts payable 744 788 755
Accrued expenses and other liabilities 1,066 994 906
Income taxes payable 458 870 81
Accrued profit sharing and retirement 118 77 92
Liabilities of discontinued operations --- 11 116
Total current liabilities 2,429 2,783 2,253
Long-term debt --- --- 55
Accrued retirement costs 67 103 503
Deferred income taxes 14 15 33
Deferred credits and other liabilities 248 239 267
Total liabilities 2,758 3,140 3,111
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, 2006 --
1,739,102,544; June 30, 2006 --
1,739,086,194; September 30, 2005 --
1,738,650,318 1,739 1,739 1,739
Paid-in capital 820 779 674
Retained earnings 16,927 16,271 12,787
Less treasury common stock at cost:
Shares: September 30, 2006 --
255,218,212; June 30, 2006 --
206,501,103; September 30, 2005 --
120,597,527 (7,413) (5,911) (3,152)
Accumulated other comprehensive
income (loss):
Minimum pension liability (33) (66) (158)
Unrealized gains (losses) on
available-for-sale investments (12) (23) (15)
Unearned compensation (1) (1) (2)
Total stockholders' equity 12,027 12,788 11,873
Total liabilities and stockholders'
equity $14,785 $15,928 $14,984
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of dollars)
For Three Months Ended
Sept. 30, June 30, Sept. 30,
2006 2006 2005
Cash flows from operating activities:
Net income $ 702 $ 2,387 $ 631
Adjustments to reconcile net income
to cash provided by operating activities
of continuing operations:
Less income from discontinued operations (16) (1,648) (35)
Depreciation 266 267 332
Stock-based compensation 79 84 80
Amortization of capitalized software 26 29 33
Amortization of acquisition-related
intangibles 15 15 12
Deferred income taxes (46) (41) 110
Increase/(decrease) from changes in:
Accounts receivable (149) (138) (19)
Inventories (156) (89) 42
Prepaid expenses and other current
assets (4) 26 57
Accounts payable and accrued expenses 82 129 247
Income taxes payable (377) (334) (148)
Accrued profit sharing and retirement 41 56 29
Noncurrent accrued retirement costs (65) (68) 12
Other 21 (8) 81
Net cash provided by operating activities
of continuing operations 419 667 1,464
Cash flows from investing activities:
Additions to property, plant
and equipment (276) (374) (440)
Proceeds from sales of assets --- 2,982 ---
Purchases of cash investments (1,330) (3,063) (2,095)
Sales and maturities of
cash investments 2,585 1,983 1,147
Purchases of equity investments (11) (17) (5)
Sales of equity and debt investments --- 2 39
Acquisition of businesses,
net of cash acquired --- (28) ---
Net cash provided by (used in) investing
activities of continuing operations 968 1,485 (1,354)
Cash flows from financing activities:
Payments on loans and long-term debt --- (275) ---
Dividends paid on common stock (46) (47) (41)
Sales and other common stock transactions 89 137 160
Excess tax benefit from stock option
exercises 21 57 42
Stock repurchases (1,695) (1,037) (496)
Net cash used in financing activities
of continuing operations (1,631) (1,165) (335)
Cash flows from discontinued operations:
Operating activities --- (28) 63
Investing activities --- (6) (23)
Net cash provided by (used in)
discontinued operations --- (34) 40
Effect of exchange rate changes on cash (4) 3 (2)
Net increase/(decrease) in cash
and cash equivalents (248) 956 (187)
Cash and cash equivalents,
beginning of period 1,678 722 2,128
Cash and cash equivalents,
end of period $ 1,430 $ 1,678 $ 1,941
Business Segment Net Revenue
(Millions of dollars)
For Three Months Ended
Sept. 30, June 30, Sept. 30,
2006 2006 2005
Semiconductor $ 3,579 $ 3,505 $ 3,162
Education Technology 182 192 177
Total net revenue $ 3,761 $ 3,697 $ 3,339
Business Segment Profit (Loss)
(Millions of dollars)
For Three Months Ended
Sept. 30, June 30, Sept. 30,
2006 2006 2005
Semiconductor* $ 1,008 $ 1,032 $ 837
Education Technology 83 84 79
Corporate (161) (163) (155)
Profit from operations $ 930 $ 953 $ 761
* Semiconductor includes a benefit of $57 for a state sales tax refund
and $60 from the royalty settlement in the second quarter of 2006.
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 third quarter was $3.58 billion. This was an increase
of 2 percent from the prior quarter, which included a $70 million royalty
settlement. Compared with a year ago, revenue increased 13 percent primarily
due to higher demand for the company’s high-performance analog
and DSP products.
- Analog revenue was up 5 percent from the prior quarter and increased
15 percent from the year-ago quarter primarily due to demand for
the company’s high-performance analog products. Revenue from
high-performance analog products grew 14 percent from the prior
quarter and 37 percent from a year ago.
- DSP revenue was up 5 percent from the prior quarter and increased
12 percent from the year-ago quarter primarily due to higher demand
from the wireless market.
- TI’s remaining Semiconductor revenue was 6 percent lower
than the prior quarter due to the royalty settlement that was included
in the second quarter. Additionally, demand was lower for RISC microprocessors
in the third quarter. TI’s remaining Semiconductor revenue
increased 12 percent from a year ago due to stronger demand for
standard logic products, microcontrollers, DLP products and RISC
microprocessors that more than offset lower royalties.
- Gross profit was $1.84 billion, or 51.5 percent of revenue. This
was an increase of $29 million from the prior quarter and $240 million
from the year-ago quarter. The increases over both periods were due
to higher revenue.
- Operating profit was $1.01 billion, or 28.2 percent of revenue. This
was a decline of $24 million from the prior quarter, which included
a $117 million operating profit benefit associated with a royalty settlement
and a sales tax refund. Operating profit increased $171 million from
the year-ago quarter due to higher gross profit.
- Semiconductor orders were $3.31 billion. This was a decrease of 12
percent from the prior quarter due to lower demand across a broad range
of products, and was about even with the year-ago quarter.
Semiconductor Highlights
- LG Electronics selected TI’s OMAP-Vox™ platform for a
new series of EDGE cell phones.
- ARCHOS selected a new TI DaVinci™ technology dual-core processor
for its latest generation of portable multimedia players.
- TI introduced a high-performance analog power management chip with
stackable features that enable designers to develop a high-density power
supply that easily scales up to 320 amps of output yet maintains maximum
power efficiency.
- TI customers demonstrated upcoming models of slim DLP high-definition
televisions, which reduce the television cabinet depth to about 10 inches
and offer a very light weight, enabling flexible installation options.
Samsung has announced availability of the first slim DLP high-definition
televisions for later this year.
Educational & Productivity Solutions
- Revenue in the third quarter was $182 million. This was a decrease
of $10 million from the prior quarter reflecting the end of the back-to-school
season. It was an increase of $5 million from the year-ago quarter due
to stronger demand for graphing calculators.
- Gross profit was $116 million, or a record 63.8 percent of revenue.
Gross profit decreased $3 million from the prior quarter, and increased
$6 million from the year-ago quarter primarily due to lower manufacturing
costs and higher revenue.
- Operating profit was $83 million, or a record 45.9 percent of revenue.
This was about even with the prior quarter and an increase of $4 million
from the year-ago quarter.
###
“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
OMAP-Vox
DaVinci
Other trademarks are the property of their respective owners.
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