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Press release from PR Newswire

TI reports 2Q13 financial results and shareholder returns

Monday, July 22, 2013

TI reports 2Q13 financial results and shareholder returns

16:30 EDT Monday, July 22, 2013

Conference call on TI website at 4:30 p.m. Central time today
www.ti.com/ir

DALLAS, July 22, 2013 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported second-quarter revenue of $3.05 billion, net income of $660 million and earnings per share of 58 cents. Results include a gain associated with the transfer of wireless connectivity technology to a customer and higher-than-expected charges associated with previously announced restructuring. The net impact of these items was a benefit of 16 cents to EPS.

Regarding the company's performance and returns to shareholders, Rich Templeton, TI's chairman, president and CEO, made the following comments:

  • "Our revenue ended the quarter as expected, up 6 percent sequentially. Excluding legacy wireless, revenue grew 8 percent; our positions in industrial and automotive markets were important contributors to the sequential growth in revenue. Additionally, backlog increased, and with it, visibility into the second half improved.
  • "Analog and Embedded Processing are now 78 percent of revenue, 6 points higher than a year ago. Our legacy wireless products declined to less than 5 percent of revenue and should be below 2 percent in the third quarter. Silicon Valley Analog (formerly National Semiconductor) led our Analog growth and is gaining share, one year ahead of plan.
  • "Our business model continues to generate strong cash flow from operations. Free cash flow for the trailing 12 months was almost $3 billion, up 10 percent compared with a year ago. Free cash flow comprised 24 percent of revenue, which is consistent with our target of 20-25 percent.
  • "We returned $1.0 billion to shareholders through dividends and stock repurchases in the second quarter. For the trailing 12 months, the return to shareholders totaled $3.6 billion, or 123 percent of free cash flow. Our strategy to return to shareholders all of our free cash flow not needed for debt repayment reflects our confidence in the long-term sustainability of our Analog and Embedded Processing business model.
  • "Our balance sheet remains strong, with $3.2 billion of cash and short-term investments at the end of the quarter, 82 percent of which is owned by the company's U.S. entities, even after reducing debt by $500 million. Inventory days were 105, up from 101 a year ago, and consistent with our model of 105-115."

Free cash flow and revenue excluding legacy wireless are non-GAAP financial measures. Free cash flow is Cash flow from operations less Capital expenditures.

Earnings summary

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

2Q13

2Q12

Change

Revenue

$ 3,047

$ 3,335

-9%

Operating profit

$    906

$    598

52%

Net income

$    660

$    446

48%

Earnings per share

$     .58

$     .38

53%

 

Cash generation

Amounts are in millions of dollars.

Trailing 12 months

2Q13

2Q13

2Q12

Change

Cash flow from operations

$  674

$ 3,323

$ 3,234

3%

Capital expenditures

$    97

$    427

$    595

-28%

Free cash flow

$  577

$ 2,896

$ 2,639

10%

Free cash flow % of revenue

19%

24%

20%

Capital expenditures for the trailing 12 months were 3 percent of revenue.

 

Cash return

Amounts are in millions of dollars.

Trailing 12 months

2Q13

2Q13

Percentage of

Free Cash Flow

Dividends paid

$   309

$    971

34%

Stock repurchases

$   721

$ 2,600

90%

Total cash returned

$1,030

$ 3,571

123%

 

Outlook

For the third quarter of 2013, TI expects:

  • Revenue: $3.09 ? 3.35 billion
  • Earnings per share: $0.49 ? 0.57

Revenue from legacy wireless products is expected to decline about $90 million sequentially at the middle of this range as the company winds down these product lines.

TI will update its third-quarter outlook on September 10, 2013.

For the full year of 2013, TI expects approximately the following:

  • R&D expense: $1.5 billion, unchanged
  • Capital expenditures: $0.5 billion, unchanged
  • Depreciation: $0.9 billion, unchanged
  • Annual effective tax rate: 24 percent, up from the prior estimate of 22 percent

Consolidated Statements of Income

(Millions of dollars, except share and per-share amounts)

 

 

For Three Months Ended

Jun. 30,

2013

Jun. 30,

2012

Mar. 31,

2013

Revenue

$ 3,047

$ 3,335

$ 2,885

Cost of revenue

1,477

1,684

1,511

Gross profit

1,570

1,651

1,374

Research and development (R&D)

389

480

419

Selling, general and administrative (SG&A)

471

456

459

Acquisition charges

86

104

86

Restructuring charges/other

(282)

13

15

Operating profit

906

598

395

Other income (expense), net

--

(2)

2

Interest and debt expense

24

20

23

Income before income taxes

882

576

374

Provision for income taxes

222

130

12

Net income

$    660

$    446

$    362

Earnings per common share:

    Basic

$     .59

$     .38

$     .32

    Diluted

$     .58

$     .38

$     .32

Average shares outstanding (millions):

    Basic

1,103

1,140

1,107

    Diluted

1,117

1,154

1,123

Cash dividends declared per share of common stock

$     .28

$     .17

$     .21

Percentage of revenue:

Gross profit

51.5%

49.5%

47.6%

R&D

12.8%

14.4%

14.5%

SG&A

15.5%

13.7%

15.9%

Operating profit

29.7%

17.9%

13.7%

As required by accounting rule ASC 260, net income allocated to unvested restricted stock units (RSUs), on which we pay dividend equivalents, is excluded from the calculation of EPS. The amount excluded is $11 million, $8 million and $7 million for the quarters ending June 30, 2013, June 30, 2012, and March 31, 2013, respectively.

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

Jun. 30,

2013

Jun. 30,

2012

Mar. 31,

2013

Assets

Current assets:

    Cash and cash equivalents

$   1,180

$   1,192

$   1,393

    Short-term investments

2,064

1,141

2,469

    Accounts receivable, net of allowances of ($31), ($22) and ($26)

1,491

1,629

1,333

    Raw materials

101

123

99

    Work in process

926

1,040

930

    Finished goods

693

722

671

    Inventories

1,720

1,885

1,700

    Deferred income taxes

1,070

1,155

1,051

    Prepaid expenses and other current assets

513

351

259

    Total current assets

8,038

7,353

8,205

Property, plant and equipment at cost

6,679

6,840

6,773

    Less accumulated depreciation

(3,068)

(2,666)

(3,034)

    Property, plant and equipment, net

3,611

4,174

3,739

Long-term investments

203

218

204

Goodwill, net

4,362

4,452

4,362

Acquisition-related intangibles, net

2,388

2,729

2,473

Deferred income taxes

253

288

264

Capitalized software licenses, net

159

182

169

Overfunded retirement plans

106

32

62

Other assets

278

93

223

Total assets

$ 19,398

$ 19,521

$ 19,701

Liabilities and Stockholders' Equity

Current liabilities:

    Commercial paper borrowings

$         --

$      500

$         --

    Current portion of long-term debt

1,000

1,500

1,500

    Accounts payable

437

555

440

    Accrued compensation

463

454

365

    Income taxes payable

218

101

109

    Deferred income taxes

2

3

2

    Accrued expenses and other liabilities

682

711

694

    Total current liabilities

2,802

3,824

3,110

Long-term debt

4,165

2,703

4,183

Underfunded retirement plans

240

700

258

Deferred income taxes

584

593

598

Deferred credits and other liabilities

539

543

600

Total liabilities

8,330

8,363

8,749

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 ? 1,740,815,939

1,741

1,741

1,741

    Paid-in capital

1,117

1,164

1,049

    Retained earnings

27,677

26,592

27,330

    Less treasury common stock at cost:

        Shares: Jun. 30, 2013 ? 639,643,135; Jun. 30, 2012 ?

        603,058,077; Mar. 31, 2013 ? 631,661,551

(18,877)

(17,598)

(18,518)

    Accumulated other comprehensive income (loss), net of taxes

(590)

(741)

(650)

    Total stockholders' equity

11,068

11,158

10,952

Total liabilities and stockholders' equity

$ 19,398

$ 19,521

$ 19,701

 

Consolidated Statements of Cash Flows

(Millions of dollars)

For Three Months Ended

Jun. 30,

2013

Jun. 30,

2012

Mar. 31,

2013

Cash flows from operating activities:

    Net income

$ 660

$ 446

$ 362

    Adjustments to net income:

        Depreciation

221

241

228

        Amortization of acquisition-related intangibles

85

86

85

        Stock-based compensation

75

64

75

        Gains on sales of assets

--

--

(3)

        Deferred income taxes

(54)

21

15

    Increase (decrease) from changes in:

        Accounts receivable

(160)

(151)

(112)

        Inventories

(20)

(32)

57

        Prepaid expenses and other current assets

(304)

50

21

        Accounts payable and accrued expenses

(36)

(77)

(244)

        Accrued compensation

95

75

(154)

        Income taxes payable

115

(103)

29

    Changes in funded status of retirement plans

23

27

29

    Other

(26)

28

(28)

Cash flows from operating activities

674

675

360

Cash flows from investing activities:

    Capital expenditures

(97)

(146)

(84)

    Proceeds from asset sales

--

--

18

    Purchases of short-term investments

(1,866)

(415)

(536)

    Proceeds from short-term investments

2,268

853

615

    Purchases of long-term investments

(1)

--

--

    Proceeds from long-term investments

6

29

9

Cash flows from investing activities

310

321

22

Cash flows from financing activities:

    Proceeds from issuance of long-term debt

986

--

--

    Repayment of debt and commercial paper borrowings

(1,500)

(575)

--

    Dividends paid

(309)

(195)

(232)

    Stock repurchases

(721)

(300)

(679)

    Proceeds from common stock transactions

343

68

454

    Excess tax benefit from share-based payments

11

5

52

    Other

(7)

--

--

Cash flows from financing activities

(1,197)

(997)

(405)

Net change in cash and cash equivalents

(213)

(1)

(23)

Cash and cash equivalents, beginning of period

1,393

1,193

1,416

Cash and cash equivalents, end of period

$ 1,180

$ 1,192

$ 1,393

Certain amounts in prior periods' financial statements have been reclassified to conform to the current presentation.

 

 

2Q13 segment results

2Q13

2Q12

Change

1Q13

Change

Analog:

    Revenue

$ 1,745

$ 1,800

-3%

$ 1,648

6%

    Operating profit

$    416

$    437

-5%

$    300

39%

Embedded Processing:

    Revenue

$    618

$    580

7%

$    561

10%

    Operating profit

$      54

$      52

4%

$        7

671%

Other:

    Revenue

$    684

$    955

-28%

$    676

1%

    Operating profit*

$    436

$    109

300%

$      88

395%

* Includes Acquisition charges and Restructuring charges/other.

Analog: (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog)

  • Compared with a year ago, revenue decreased primarily due to lower Power Management revenue. High Performance Analog revenue also declined, while Silicon Valley Analog and High Volume Analog & Logic revenue were about even.
  • Compared with the prior quarter, revenue grew due to higher revenue from Silicon Valley Analog, High Volume Analog & Logic and High Performance Analog. Revenue from Power Management was about even.
  • Operating profit decreased from a year ago primarily due to lower revenue and associated gross profit. Operating profit increased from the prior quarter due to higher gross profit.

Embedded Processing: (includes Processors, Microcontrollers and Connectivity)

  • Compared with the year-ago quarter, the increase in revenue was primarily due to higher Microcontrollers revenue. Revenue from Connectivity also increased, while Processors revenue was about even.
  • Compared with the prior quarter, revenue increased primarily due to Processors. Revenue from Microcontrollers and Connectivity also increased.
  • Operating profit increased from a year ago and from the prior quarter due to higher gross profit.

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

  • Compared with the year-ago quarter, revenue declined primarily due to lower revenue from legacy wireless products. Revenue from custom ASIC products, DLP products and calculators also declined, while royalties increased.
  • Compared with the prior quarter, revenue was about even. Revenue from calculators and DLP products increased. Custom ASIC revenue was about even, and revenue from legacy wireless products and royalties declined.
  • Operating profit increased from both a year ago and the prior quarter due to a gain associated with the transfer of wireless connectivity technology.

 

Non-GAAP financial information

Revenue excluding legacy wireless

This release includes a reference to TI's revenue excluding revenue from legacy wireless products. This measure, which was not prepared in accordance with generally accepted accounting principles in the United States (GAAP), provides investors with insight into TI's underlying business results and is supplemental to the comparable GAAP measure.

TEXAS INSTRUMENTS INCORPORATED

(Millions of dollars)

 

For Three Months Ended

Jun. 30, 2013

Mar. 31, 2013

Change

Revenue (GAAP)

$      3,047

$      2,885

6%

Less legacy wireless revenue

148

210

-30%

TI Revenue less legacy wireless revenue (non-GAAP)

$      2,899

$      2,675

8%

Free cash flow

This release also includes references to free cash flow and various ratios based on that measure. These are financial measures that were not prepared in accordance with GAAP. Free cash flow was calculated by subtracting Capital expenditures from the most directly comparable GAAP measure of Cash flows from operating activities (also referred to as Cash flow from operations).

The free cash flow measures were compared to the following GAAP items to determine the various non-GAAP ratios presented below and referred to in the release: Revenue, Dividends paid and Stock repurchases. Reconciliation to the most directly comparable GAAP-based ratios is provided in the table below.

The company believes these non-GAAP measures provide insight into its liquidity, its cash-generating capability and the amount of cash available to return to investors as well as insight into its financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures.

TEXAS INSTRUMENTS INCORPORATED

(Millions of dollars)

 

For the Twelve

Months Ended

Jun. 30, 2013

Percentage of

Revenue

Revenue

$      12,301

Cash flow from operations (GAAP)

$        3,323

27%

Less Capital expenditures

427

3%

Free cash flow (non-GAAP)

$        2,896

24%

For the Twelve

Months Ended

Jun. 30, 2013

Percentage of

Cash Flow from

Operations

(GAAP)

Percentage of

Free

Cash Flow

(Non-GAAP)

Dividends paid

$          971

29%

34%

Stock repurchases

2,600

78%

90%

Total cash returned to shareholders

$       3,571

107%

123%

Dividends paid and Stock repurchases as a percentage of free cash flow provided in the above chart do not sum to total cash returned to shareholders as a percentage of free cash flow due to rounding.

 

 

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, computing, industrial, consumer electronics and automotive;
  • 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, communications and information technology 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;
  • 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;
  • Timely implementation of new manufacturing technologies and installation of manufacturing equipment, and the ability to obtain needed third-party foundry and assembly/test subcontract services;
  • TI's obligation to make principal and interest payments on its debt;
  • TI's ability to successfully integrate and realize opportunities for growth from acquisitions, and our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings; and
  • Breaches of our information technology systems.

For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of TI's Form 10-K for the year ended December 31, 2012. The forward-looking statements included in this release are made only as of the date of this release, and TI undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

About Texas Instruments

Texas Instruments Incorporated (TI) is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors. By employing the world's brightest minds, TI creates innovations that shape the future of technology. TI is helping more than 100,000 customers transform the future, today. Learn more at www.ti.com.

TI trademarks:            DLPOther trademarks are the property of their respective owners.

TXN-F

SOURCE Texas Instruments Incorporated

For further information: Media, Chris Rongone, 214-479-6868, c-rongone@ti.com, or Whitney Jodry, 214-479-0952, wjodry@ti.com; or Investors, Ron Slaymaker, 214-479-6388, rslaymaker@ti.com, or Dave Pahl, 214-479-4629, dpahl@ti.com, or Brandon Hodge, 214-479-3515, brandonhodge@ti.com (Please do not publish these numbers or email addresses.)

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