EX-99 2 exhibit.htm NEWS RELEASE DATED JULY 23, 2007 NEWS RELEASE DATED JULY 23, 2007
Exhibit 99
TI Reports 2Q07 Financial Results
 
·  
TI Revenue Up 7% Sequentially
·  
EPS of $0.42, Up 20% Sequentially
·  
Record Gross Margin as Company Progresses Toward Higher Profitability Goals
 
Conference Call on TI Web Site at 4:30 p.m. Central Time Today
www.ti.com

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 23, 2007) - Texas Instruments Incorporated (TI) (NYSE: TXN) today reported revenue of $3.42 billion for the second quarter of 2007. Revenue increased 7 percent compared with the prior quarter as demand for the company’s semiconductor products began to rebound following an inventory correction in the semiconductor market. Growth also benefited from a seasonal increase in demand for the company’s graphing calculator products. Revenue decreased 7 percent compared with the year-ago quarter due to lower demand across a broad base of products.
 
Earnings per share (EPS) were $0.42. This was a $0.07, or 20 percent, increase from the prior quarter and a $0.05 decrease from the year-ago quarter. In the year-ago quarter, financial results included EPS benefits of $0.03 from a sales tax refund and $0.02 associated with a favorable royalty settlement. The royalty settlement also contributed $70 million to revenue in the year-ago quarter.
 
“Our attention to customers and growing focus on analog continue to help us deliver stronger financial results,” said Rich Templeton, president and chief executive officer.  “Moreover, we see even greater opportunities ahead as the market regains momentum.  With TI’s broad product portfolio, spanning both analog and digital signal processing technologies, we are in a unique position to support customers working on hundreds of electronics applications across the globe.  We also see potential to expand our margins, and we recently raised our profitability goals to 55 percent gross margin and 30 percent operating margin. We expect to meet these goals within the next few years.” 
 
Gross Profit
 
Gross profit was $1.78 billion, a record 52.1 percent of revenue. This was up $147 million from the prior quarter due to higher revenue. It was down $123 million from the year-ago quarter primarily due to the combination of the royalty settlement and sales tax refund in the year-ago quarter, as well as lower revenue.
 
Operating Expenses 
 
Research and development (R&D) expense was $551 million. This was about even with the prior quarter. R&D expense increased $15 million from the year-ago quarter due to the favorable impact of the sales tax refund a year ago.
 
Selling, general and administrative (SG&A) expense was $424 million. This was an increase of $19 million from the prior quarter primarily due to higher compensation-related expenses, as well as seasonally higher marketing expenses for graphing calculators. SG&A expense was about even with the year-ago quarter.
 
Operating Profit
 
Operating profit was $809 million, or 23.6 percent of revenue. This was an increase of $129 million from the prior quarter due to higher gross profit. It was a decrease of $144 million from the year-ago quarter primarily due to the combination of the royalty settlement and sales tax refund in the year-ago quarter.
 
Other Income (Expense) Net (OI&E)
 
OI&E was $56 million. This was an increase of $16 million from the prior quarter primarily due to the impairment of an investment in the prior quarter. OI&E declined $32 million from a year ago primarily due to a benefit associated with the sales tax refund in the year-ago quarter, as well as lower interest income.
 
Income
 
Income from continuing operations was $614 million, or $0.42 per share.
 
Orders
 
TI orders were $3.45 billion. This was an increase of $247 million, or 8 percent, from the prior quarter due to higher demand for semiconductor products and seasonally stronger demand for calculators. Orders declined $455 million from the year-ago quarter due to lower demand for semiconductor products that more than offset a $50 million increase in demand for calculators.
 
Cash
 
Cash flow from operations was $898 million. This was an increase of $344 million from the prior quarter primarily due to a reduced need for cash to meet working capital requirements, such as the payment of annual profit sharing and bonus that was made in the prior quarter. Higher net income also contributed to the increase in cash flow from operations. Total cash (cash and cash equivalents plus short-term investments) was $3.58 billion at the end of the second quarter. This was an increase of $245 million from the end of the prior quarter and a decrease of $2.09 billion from the year-ago quarter, which included $2.98 billion from the sale of the company’s former Sensors & Controls business in that quarter. In the second quarter of 2007, the company used $742 million to repurchase 21 million shares of common stock, paid $115 million in dividends to shareholders and retired $43 million of debt on its maturity date. Since the end of the year-ago quarter, the company has used $4.42 billion to repurchase 143 million shares of common stock and paid $278 million in dividends.
 
Capital Spending and Depreciation  
 
Capital expenditures were $174 million. This was a decrease of $5 million from the prior quarter and a decrease of $200 million from the year-ago quarter due to lower expenditures for semiconductor manufacturing equipment.  TI’s capital expenditures in the quarter were primarily for equipment used in the manufacture of semiconductors, especially assembly and test equipment.
 
Depreciation was $256 million. This was an increase of $4 million from the prior quarter and a decrease of $11 million from the year-ago quarter. 
 
Accounts Receivable and Inventories
 
Accounts receivable were $1.90 billion at the end of the second quarter. This was an increase of $141 million from the prior quarter due to higher revenue and a decrease of $32 million from the year-ago quarter due to lower revenue. Days sales outstanding were 50 at the end of the second quarter compared with 50 at the end of the prior quarter and 47 at the end of the year-ago quarter.
 
Inventory was $1.42 billion at the end of the second quarter. This was an increase of $15 million from the prior quarter as the company built inventory of graphing calculators in preparation for the back-to-school sales season. Compared with a year ago, inventory increased $89 million primarily due to replenishment of high-performance analog product inventory from less-than-desirable levels a year ago. Days of inventory at the end of the second quarter were 78 compared with 82 at the end of the prior quarter and 67 a year ago.
 
Outlook
 
TI intends to provide a mid-quarter update to its financial outlook on September 11, 2007, 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 2007, TI expects revenue to be in the following ranges:
 
·  
Total TI, $3.49 billion to $3.79 billion;
·  
Semiconductor, $3.29 billion to $3.57 billion; and
·  
Education Technology, $200 million to $220 million.
 
    TI expects earnings per share to be in the range of $0.46 to $0.52.
 
This estimate assumes that the sale of the company’s broadband DSL customer-premises equipment semiconductor product line will close at the end of July. The EPS estimate does not include the expected gain on the sale.
 
In 2007, TI still expects: an annual effective tax rate of about 28 percent, R&D expense of about $2.2 billion, capital expenditures of about $0.9 billion and depreciation of about $1.0 billion. 
 


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

   
For Three Months Ended
  
   
June 30,
2007
  
Mar. 31,
2007
  
June 30,
2006
  
                     
Net revenue
  
$
3,424
  
$
3,191
  
$
3,697
  
Cost of revenue (COR)
    
1,640
    
1,554
    
1,790
  
Gross profit
   
1,784
    
1,637
    
1,907
  
Research and development (R&D)
   
551
    
552
    
536
  
Selling, general and administrative (SG&A)
   
424
    
405
    
418
  
Total operating costs and expenses
   
2,615
    
2,511
    
2,744
  
Profit from operations
   
809
    
680
    
953
  
Other income (expense) net
   
56
    
39
    
86
  
Income from continuing operations before income taxes
   
865
    
719
    
1,039
  
Provision for income taxes
   
251
    
203
    
300
  
Income from continuing operations
   
614
    
516
    
739
  
Income (loss) from discontinued operations, net of income taxes
   
(4
)
  
--
    
1,648
  
Net income
 
$
610
  
$
516
  
$
2,387
  
                     
Basic earnings per common share:
                    
Income from continuing operations
 
$
.43
  
$
.36
  
$
.48
  
Net income
 
$
.42
  
$
.36
  
$
1.54
  
                     
Diluted earnings per common share:
                    
Income from continuing operations
 
$
.42
  
$
.35
  
$
.47
  
Net income
 
$
.42
  
$
.35
  
$
1.50
  
                     
Average shares outstanding (millions):
                    
Basic
   
1,437
    
1,442
    
1,553
  
Diluted
   
1,469
    
1,470
    
1,586
  
Cash dividends declared per share of common stock
 
$
.08
  
$
.04
  
$
.03
  
                     
Percentage of revenue:
                    
                     
Gross profit
   
52.1
%
  
51.3
%
  
51.6
%
R&D
   
16.1
%
  
17.3
%
  
14.5
%
SG&A
   
12.4
%
  
12.7
%
  
11.3
%
Operating profit
   
23.6
%
  
21.3
%
  
25.8
%


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


   
June 30,
2007
  
Mar. 31,
2007
  
June 30,
2006
  
Assets
                    
Current assets:
                    
Cash and cash equivalents
 
$
1,266
  
$
965
  
$
1,678
  
Short-term investments
   
2,315
    
2,371
    
3,992
  
Accounts receivable, net of allowances of ($27), ($25) and ($28)
    
1,897
    
1,756
    
1,929
  
Raw materials
   
106
    
114
    
108
  
Work in process
   
876
    
879
    
818
  
Finished goods
   
442
    
416
    
409
  
Inventories
   
1,424
    
1,409
    
1,335
  
Deferred income taxes
   
1,072
    
1,071
    
632
  
Prepaid expenses and other current assets
   
246
    
257
    
215
  
Assets of discontinued operations
   
--
    
4
    
11
  
Total current assets
   
8,220
    
7,833
    
9,792
  
Property, plant and equipment at cost
   
7,657
    
7,715
    
8,406
  
Less accumulated depreciation
   
(3,859
)
  
(3,835
)
  
(4,422
)
Property, plant and equipment, net
   
3,798
    
3,880
    
3,984
  
Equity and other long-term investments
   
254
    
250
    
253
  
Goodwill
   
792
    
792
    
792
  
Acquisition-related intangibles
   
117
    
131
    
117
  
Deferred income taxes
   
405
    
436
    
428
  
Capitalized software licenses, net
   
259
    
280
    
197
  
Overfunded retirement plans
   
79
    
54
    
--
  
Prepaid retirement costs
   
--
    
--
    
219
  
Other assets
   
96
    
94
    
146
  
Total assets
 
$
14,020
  
$
13,750
  
$
15,928
  
                     
Liabilities and Stockholders’ Equity
                    
Current liabilities:
                    
Loans payable and current portion of long-term debt
 
$
--
  
$
43
  
$
43
  
Accounts payable
   
622
    
550
    
788
  
Accrued expenses and other liabilities
   
1,048
    
877
    
994
  
Income taxes payable
   
187
    
286
    
870
  
Accrued profit sharing and retirement
   
98
    
51
    
77
  
Liabilities of discontinued operations
   
--
    
--
    
11
  
Total current liabilities
   
1,955
    
1,807
    
2,783
  
Underfunded retirement plans
   
115
    
197
    
--
  
Accrued retirement costs
   
--
    
--
    
103
  
Deferred income taxes
   
20
    
10
    
15
  
Deferred credits and other liabilities
    
436
    
453
    
239
  
Total liabilities
   
2,526
    
2,467
    
3,140
  
                     
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, 2007 -- 1,739,467,307; March 31, 2007 -- 1,739,211,844; June 30, 2006 -- 1,739,086,194
   
1,739
    
1,739
    
1,739
  
Paid-in capital
   
761
    
822
    
779
  
Retained earnings
   
18,511
    
18,017
    
16,271
  
Less treasury common stock at cost: Shares: June 30, 2007 -- 310,382,046; March 31, 2007 -- 305,502,566; June 30, 2006 -- 206,501,103
    
(9,233
)
  
(8,940
)
  
(5,911
)
Accumulated other comprehensive income (loss), net of tax
    
(284
)
  
(355
)
  
(90
)
Total stockholders’ equity
   
11,494
    
11,283
    
12,788
  
Total liabilities and stockholders’ equity
 
$
14,020
  
$
13,750
  
$
15,928
  
                     



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

   
For Three Months Ended
  
   
June 30,
2007
  
Mar. 31,
2007
  
June 30,
2006
  
Cash flows from operating activities:
              
Net income
 
$
610
  
$
516
  
$
2,387
  
Adjustments to reconcile net income to cash provided by
operating activities of continuing operations:
                   
(Income) loss from discontinued operations
   
4
   
--
   
(1,648
)
Depreciation
    
256
    
252
    
267
  
Stock-based compensation
   
69
    
78
    
84
  
Amortization of capitalized software
   
24
    
25
    
29
  
Amortization of acquisition-related intangibles
   
14
    
14
    
15
  
Deferred income taxes
   
(3
)
  
(3
)
  
(41
)
Increase (decrease) from changes in:
                   
Accounts receivable
   
(144
)
  
17
    
(138
)
Inventories
   
(15
)
  
28
    
(89
)
Prepaid expenses and other current assets
   
42
    
(79
)
  
9
  
Accounts payable and accrued expenses
   
110
    
(167
)
  
133
  
Income taxes payable
   
(132
)
  
(1
)
  
(334
)
Accrued profit sharing and retirement
   
47
    
(111
)
  
56
  
Change in funded status of retirement plans and accrued retirement costs
   
--
    
1
    
(68
)
Other
   
16
    
(16
)
  
(8
)
Net cash provided by operating activities of continuing operations
    
898
    
554
    
654
  
                     
Cash flows from investing activities:
                    
Additions to property, plant and equipment
   
(174
)
  
(179
)
  
(374
)
Proceeds from sales of assets
   
--
    
--
    
2,982
  
Purchases of cash investments
   
(1,479
)
  
(846
)
  
(3,063
)
Sales and maturities of cash investments
   
1,529
    
1,011
    
1,983
  
Purchases of equity investments
   
(6
)
  
(5
)
  
(17
)
Sales of equity and other long-term investments
   
3
    
2
    
2
  
Acquisitions, net of cash acquired
   
--
    
(27
)
  
(28
)
Net cash provided by (used in) investing activities of continuing
operations
   
(127
)
  
(44
)
  
1,485
  
                     
Cash flows from financing activities:
                    
Payments on loans and long-term debt
   
(43
)
  
--
    
(275
)
Dividends paid
    
(115
)
  
(58
)
  
(47
)
Sales and other common stock transactions
   
374
    
154
    
150
  
Excess tax benefit from stock option exercises
   
56
    
34
    
57
  
Stock repurchases
    
(742
)
  
(857
)
  
(1,037
)
Net cash used in financing activities of continuing operations
   
(470
)
  
(727
)
  
(1,152
)
                     
Net cash used in discontinued operations
    
--
    
--
    
(34
)
Effect of exchange rate changes on cash
   
--
    
(1
)
  
3
  
Net increase (decrease) in cash and cash equivalents
   
301
    
(218
)
  
956
  
Cash and cash equivalents, beginning of period
   
965
    
1,183
    
722
  
Cash and cash equivalents, end of period
 
$
1,266
  
$
965
  
$
1,678
  
 
Certain amounts in the prior periods’ financial statements have been reclassified to conform to the current presentation.


Segment Net Revenue
(Millions of dollars)

   
For Three Months Ended
  
   
June 30,
2007
  
Mar. 31,
2007
  
June 30,
2006
  
                     
Semiconductor
 
$
3,257
  
$
3,115
  
$
3,505
  
Education Technology
   
167
    
76
    
192
  
                     
Total net revenue
 
$
3,424
  
$
3,191
  
$
3,697
  
                     
                     





Segment Profit (Loss)
(Millions of dollars)

   
For Three Months Ended
  
   
June 30,
2007
  
Mar. 31,
2007
  
June 30,
2006
  
                     
Semiconductor*
 
$
905
  
$
831
  
$
1,032
  
Education Technology
   
74
    
16
    
84
  
Corporate**
   
(170
)
  
(167
)
  
(163
)
                     
Profit from operations
 
$
809
  
$
680
  
$
953
  
                     
                     
* Semiconductor profit from operations includes a benefit of $57 for a sales tax refund and $60 from the royalty settlement in the second quarter of 2006.
** Corporate includes the following stock-based compensation expense:
                     
COR
 
$
13
  
$
15
  
$
16
  
R&D
   
21
    
23
    
25
  
SG&A
   
35
    
40
    
43
  
Profit from operations
 
$
69
  
$
78
  
$
84
  





Semiconductor
 
·  
Revenue in the second quarter was $3.26 billion. This was an increase of 5 percent from the prior quarter due to higher demand for DSP, DLP® and analog products. Compared with a year ago, revenue decreased 7 percent as higher demand for high-performance analog products was more than offset by declines across a broad base of other products.
 
o  
Analog product revenue of $1.27 billion was up 2 percent from the prior quarter due to increased demand for high-performance analog products. Compared with the year-ago quarter, analog revenue decreased 3 percent as a decline in analog revenue for cell phone applications more than offset gains in high-performance analog revenue. Revenue from high-performance analog products increased 6 percent from the prior quarter and increased 11 percent from a year ago.
o  
DSP product revenue of $1.24 billion was up 7 percent from the prior quarter due to higher demand for products used in cell phone applications. DSP product revenue declined 5 percent from a year ago due to lower demand for a broad range of products.
o  
TI’s remaining Semiconductor revenue of $746 million was 5 percent higher than the prior quarter primarily due to growth in DLP products and, to a lesser extent, standard logic products. Microcontrollers and RISC microprocessors were about even with the prior quarter while royalties declined. TI’s remaining Semiconductor revenue decreased 17 percent from the year-ago quarter primarily due to a decline in RISC microprocessor revenue and the royalty settlement in the year-ago quarter. To a lesser extent, DLP products and standard logic products revenue also declined while microcontrollers were about even with the year-ago quarter.
 
·  
Gross profit was $1.71 billion, or 52.5 percent of revenue. This was an increase of $82 million from the prior quarter due to higher revenue. Gross profit declined $105 million from the year-ago quarter due to the combination of the royalty settlement and sales tax refund in the year-ago quarter, as well as lower revenue.
 
·  
Operating profit was $905 million, or 27.8 percent of revenue. This was an increase of $74 million from the prior quarter due to higher gross profit. It was a decline of $127 million from the year-ago quarter primarily due to the combination of the royalty settlement and the sales tax refund in the year-ago quarter.
 
·  
Semiconductor orders were $3.25 billion. This was an increase of 6 percent from the prior quarter due to higher demand across a broad range of analog and DSP products. Orders declined 13 percent from the year-ago quarter due to broadly lower demand.

Semiconductor Highlights
 
·  
TI delivered the industry’s highest performance family of two- and four-channel analog-to-digital data converters. The chips combine low power, high performance and speed in a space-saving package and are tailored for advanced communications, medical, video, imaging and instrumentation applications.
 
·  
TI introduced the industry’s first location-detection system-on-chip solution for low-power ZigBee® wireless sensor networking applications such as asset and equipment tracking, inventory control, patient monitoring, and security and commissioning networks.
 
·  
Lenovo Mobile, China’s leading handset manufacturer, selected TI’s “LoCosto” single-chip platform for a new family of low-cost, multimedia-rich cell phones.
 
Education Technology
 
·  
Revenue in the second quarter was $167 million. This was an increase of $91 million from the prior quarter as retailers purchased calculators in preparation for the back-to-school season. This was a decrease of $25 million from the year-ago quarter, as some major retailers delayed stocking calculator inventory until the third quarter, closer to the start of the school year.
 
·  
Gross profit was $109 million, or a record 65.1 percent of revenue. This was up $64 million from the prior quarter due to higher revenue. Gross profit decreased $10 million from the year-ago quarter due to lower revenue.
 
·  
Operating profit was $74 million, or 44.1 percent of revenue. This was an increase of $58 million compared with the prior quarter due to higher gross profit. It was a decrease of $10 million from the year-ago quarter 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 our 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 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, 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;
·  
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 our most recent Form 10-K. The forward-looking statements included in this release are made only as of the date of publication, and we undertake 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 includes the Education Technology business. TI is headquartered in Dallas, Texas, and has manufacturing, design or sales operations in more than 25 countries.
 
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