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TI reports financial results for 2Q10

Conference call on TI website at 4:30 p.m. Central time today

PRNewswire-FirstCall
Jul 19, 2010

DALLAS, July 19 /PRNewswire-FirstCall/ -- Texas Instruments Incorporated (TI) (NYSE: TXN) today announced second-quarter revenue of $3.50 billion, net income of $769 million and earnings per share of 62 cents.  

"Our Analog and Embedded Processing businesses turned in double-digit sequential growth, outpacing their respective markets and again confirming their ability to positively impact the financial performance of TI.  As a result, we delivered our highest-ever quarterly operating profit," said Rich Templeton, TI chairman, president and chief executive officer.   

"Orders were strong in the quarter, backlog increased and we expect to grow revenue again in the third quarter.  Our steady investments in production capacity, even through last year's downturn, are now allowing us to meet higher demand levels from customers and simultaneously reduce lead times, which we believe is not only in the best interest of our customers, but will also help us gain share.

"As we continue our transformation to an Analog and Embedded Processing company, we believe we can significantly outgrow these markets by offering products that are optimized to the needs of our customers and by putting manufacturing capacity in place before it's needed," Templeton said. 

2Q10 financial summary

Amounts are in millions of dollars, except per-share amounts.  

2Q10

2Q09

vs. 2Q09

1Q10

vs. 1Q10

Revenue

$3,496

$2,457

42%

$3,205

9%

Operating profit

$1,107

$343

223%

$950

17%

Net income

$769

$260

196%

$658

17%

Earnings per share

$0.62

$0.20

210%

$0.52

19%

Cash flow from operations

$562

$557

1%

$710

-21%


TI's operating profit increased compared with the second quarter of 2009 and the prior quarter of 2010 due to higher gross profit, which primarily reflects higher revenue.  In addition, compared with a year ago, higher gross profit also reflects the benefit associated with higher utilization of manufacturing assets.    

2Q10 segment results

2Q10

2Q09

vs. 2Q09

1Q10

vs. 1Q10

Analog:

  Revenue

$1,512

$970

56%

$1,367

11%

  Operating profit

$472

$103

358%

$398

19%

Embedded Processing:

  Revenue

$516

$350

47%

$440

17%

  Operating profit

$115

$28

311%

$73

58%

Wireless:

  Revenue

$727

$614

18%

$717

1%

  Operating profit

$165

$51

224%

$158

4%

Other:

  Revenue

$741

$523

42%

$681

9%

  Operating profit

$355

$161

120%

$321

11%


Note:  2Q09 has been restated to reflect the 1Q10 transfer of a low-power wireless product
line from the Analog segment to the Wireless segment.  During all of 2009, revenue from this
product line was $68 million, and it operated at a loss of $17 million.


Analog:  (includes high-volume analog & logic, high-performance analog and power management products)  

  • Compared with a year ago, the increase in revenue was due to growth in all three major product areas, especially high-volume analog & logic products.    
  • Compared with the prior quarter, the increase in revenue was due to growth in all three major product areas, especially high-performance analog products.
  • The growth in operating profit compared with both a year ago and the prior quarter was due to higher gross profit.  

Embedded Processing:  (includes digital signal processor and microcontroller catalog products that are sold across a wide variety of markets, as well as application-specific products that are used in communications infrastructure and automotive electronics)

  • In both comparisons, revenue growth was primarily due to catalog products.  Revenue from products for automotive and communications infrastructure applications increased to a lesser extent.
  • The gains in operating profit compared with both a year ago and the prior quarter were due to higher gross profit.  

Wireless:  (includes connectivity products, OMAP™ applications processors and baseband products)  

  • Compared with a year ago, revenue grew due to strength in connectivity products and applications processors.  Revenue from baseband products was about even with a year ago.  
  • Compared with the prior quarter, revenue was about even as higher revenue from connectivity products was partially offset by lower revenue from baseband products.
  • Operating profit increased from a year ago and from the prior quarter primarily due to higher gross profit.  

Other:  (includes DLP® products, custom ASIC products, calculators and royalties)

  • Compared with a year ago, revenue grew primarily due to DLP products.  Revenue from royalties, custom ASIC products and calculators also grew.
  • Compared with the prior quarter, revenue grew primarily due to seasonally higher calculator sales, which more than offset lower royalties.  
  • Operating profit increased from a year ago and from the prior quarter due to higher gross profit.

Restructuring charges were as follows:

2Q10

2Q09

1Q10

Analog

$7

$34

$4

Embedded Processing

$3

$18

$2

Wireless

$5

$24

$3

Other

$2

$9

$1

Total

$17

$85

$10


2Q10 additional financial information

  • Orders were $3.73 billion, up 33 percent from a year ago and up 2 percent from the prior quarter.
  • Inventory was $1.35 billion at the end of the quarter, up $286 million from a year ago and up $73 million from the prior quarter.
  • Capital expenditures were $283 million in the quarter compared with $47 million a year ago and $219 million in the prior quarter.  Capital expenditures in the quarter were for analog wafer manufacturing equipment and for assembly/test manufacturing equipment.  
  • The company used $750 million in the quarter to repurchase 29.7 million shares of its common stock and paid dividends of $147 million.

Outlook

For the third quarter of 2010, TI expects:  

  • Revenue:  $3.55 – 3.85 billion
  • Earnings per share:  $0.64 – 0.74

TI will update its third-quarter outlook on September 9, 2010.

For the full year of 2010, TI expects approximately the following:

  • R&D expense:  $1.5 billion
  • Capital expenditures:  $1.2 billion, up from the prior expectation of $0.9 billion
  • Depreciation:  $0.9 billion
  • Annual effective tax rate:  31%

The tax rate estimate is based on current tax law and does not assume reinstatement of the federal R&D tax credit, which expired at the end of 2009.


TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
(Millions of dollars, except share and per-share amounts)

For Three Months Ended

June 30,
2010

June 30,
2009

Mar. 31,
2010

Revenue

$3,496

$2,457

$3,205

Cost of revenue

1,602

1,333

1,516

Gross profit

1,894

1,124

1,689

Research and development (R&D)

392

369

370

Selling, general and administrative (SG&A)

378

327

359

Restructuring expense

17

85

10

Operating profit

1,107

343

950

Other income (expense) net

4

13

7

Income before income taxes

1,111

356

957

Provision for income taxes

342

96

299

Net income

$769

$260

$658

Earnings per common share:

   Basic

$.63

$.20

$.53

   Diluted

$.62

$.20

$.52

Average shares outstanding (millions):

   Basic

1,208

1,267

1,233

   Diluted

1,221

1,272

1,246

Cash dividends declared per share of common stock

$.12

$.11

$.12

Percentage of revenue:

Gross profit

54.2%

45.7%

52.7%

R&D

11.2%

15.0%

11.5%

SG&A

10.8%

13.3%

11.2%

Operating profit

31.7%

14.0%

29.7%



TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of dollars, except share amounts)

June 30,
2010

June 30,
2009

Mar. 31,
2010

Assets

Current assets:

Cash and cash equivalents

$1,138

$1,765

$1,217

Short-term investments

1,167

792

1,574

Accounts receivable, net of allowances of ($21), ($23) and ($20)

1,715

1,244

1,526

Raw materials

98

81

95

Work in process

812

699

812

Finished goods

439

283

369

Inventories

1,349

1,063

1,276

Deferred income taxes

566

668

556

Prepaid expenses and other current assets

195

208

174

Total current assets

6,130

5,740

6,323

Property, plant and equipment at cost

6,831

6,739

6,763

Less accumulated depreciation

(3,591)

(3,799)

(3,601)

Property, plant and equipment, net

3,240

2,940

3,162

Long-term investments

557

632

641

Goodwill

926

926

926

Acquisition-related intangibles

97

150

111

Deferred income taxes

915

909

893

Capitalized software licenses, net

229

140

219

Overfunded retirement plans

22

20

54

Other assets

48

53

41

Total assets

$12,164

$11,510

$12,370

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$542

$421

$556

Accrued expenses and other liabilities

823

931

756

Income taxes payable

18

56

317

Accrued profit sharing and retirement

155

60

90

Total current liabilities

1,538

1,468

1,719

Underfunded retirement plans

470

502

425

Deferred income taxes

70

54

68

Deferred credits and other liabilities

331

273

353

Total liabilities

2,409

2,297

2,565

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, 2010 -- 1,739,888,675; June 30, 2009 -- 1,739,734,081; Mar. 31, 2010 -- 1,739,818,725

1,740

1,740

1,740

Paid-in capital

1,127

1,045

1,095

Retained earnings

23,194

21,163

22,573

Less treasury common stock at cost:

Shares:  June 30, 2010 -- 544,693,240; June 30, 2009 -- 478,309,646; Mar. 31, 2010 -- 517,592,342

(15,652)

(14,061)

(14,976)

Accumulated other comprehensive income (loss), net of taxes

(654)

(674)

(627)

Total stockholders' equity

9,755

9,213

9,805

Total liabilities and stockholders' equity

$12,164

$11,510

$12,370



TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of dollars)

For Three Months Ended

June 30,
2010

June 30,
2009

Mar. 31,
2010

Cash flows from operating activities:

Net income

$769

$260

$658

Adjustments to net income:

  Depreciation

215

221

211

  Stock-based compensation

49

47

47

  Amortization of acquisition-related intangibles

13

12

13

  Deferred income taxes

(7)

6

(11)

Increase (decrease) from changes in:

  Accounts receivable

(188)

(116)

(251)

  Inventories

(73)

37

(74)

  Prepaid expenses and other current assets

14

(15)

(10)

  Accounts payable and accrued expenses

38

101

(66)

  Income taxes payable

(338)

(52)

203

  Accrued profit sharing and retirement

66

26

(23)

Other

4

30

13

Net cash provided by operating activities

562

557

710

Cash flows from investing activities:

Additions to property, plant and equipment

(283)

(47)

(219)

Purchases of short-term investments

(613)

(343)

(599)

Sales and maturities of short-term investments

1,033

544

768

Purchases of long-term investments

--

(3)

(2)

Redemptions and sales of long-term investments

67

43

1

Acquisitions, net of cash acquired

--

(51)

--

Net cash provided by (used in) investing activities

204

143

(51)

Cash flows from financing activities:

Dividends paid

(147)

(139)

(149)

Sales and other common stock transactions

50

19

29

Excess tax benefit from share-based payments

2

--

--

Stock repurchases

(750)

(251)

(504)

Net cash used in financing activities

(845)

(371)

(624)

Net (decrease) increase in cash and cash equivalents

(79)

329

35

Cash and cash equivalents, beginning of period

1,217

1,436

1,182

Cash and cash equivalents, end of period

$1,138

$1,765

$1,217


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 herein that describe TI'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 TI or its management:

  • Market demand for semiconductors, particularly 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, manufacturing equipment, third-party manufacturing services and manufacturing technology;
  • 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 laws and regulations to which TI or its suppliers are or may become subject, such as those imposing fees or reporting or substitution costs relating to the discharge of emissions into the environment or the use of certain raw materials in our manufacturing processes;
  • 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 our forecasts;
  • The financial impact of inadequate or excess TI inventory that results from demand that differs from projections;
  • The ability of TI and its customers and suppliers to access their bank accounts and lines of credit or otherwise access the capital markets;
  • Impairments of our non-financial assets;
  • Product liability or warranty claims, claims based on epidemic or delivery failure 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 Risk Factors discussion 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 this release, and the Company undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

About Texas Instruments

Texas Instruments (NYSE: TXN) helps customers solve problems and develop new electronics that make the world smarter, healthier, safer, greener and more fun.  A global semiconductor company, TI innovates through design, sales and manufacturing operations in more than 30 countries.  For more information, go to www.ti.com.

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