TI reports financial results for 3Q12
"TI revenue grew sequentially and operations were well executed even though the economy and semiconductor market remained weak and likely will get weaker in the fourth quarter," said
Regarding TI's business model, which is focused on Analog and Embedded Processing, Templeton said, "These two core businesses now comprise 70 percent of our revenue. The importance of this strategy shows in the strong cash that we generate even in weak markets and in our ability to return that cash to shareholders. In the third quarter, our free cash flow exceeded
3Q12 financial summary
Amounts are in millions of dollars, except per-share amounts.
3Q12 |
3Q11 |
Change |
2Q12 |
Change |
|||
Revenue |
|
$ 3,466 |
-2% |
|
2% |
||
Operating profit |
$ 840 |
$ 814 |
3% |
$ 598 |
40% |
||
Net income |
$ 784 |
$ 601 |
30% |
$ 446 |
76% |
||
Earnings per share |
$ .67 |
$ .51 |
31% |
$ .38 |
76% |
||
Cash flow from operations |
|
$ 1,140 |
5% |
$ 675 |
78% |
Acquisition charges associated with TI's acquisition of National Semiconductor are
Compared with a year ago, gross profit was about even as the effect of lower revenue and the costs associated with lower levels of factory utilization were offset by profit from higher business interruption insurance proceeds related to the
Operating profit increased from a year ago as the benefit from the
Results include a
3Q12 segment results
3Q12 |
3Q11 |
Change |
2Q12 |
Change |
|||
Analog: |
|||||||
Revenue |
|
|
18% |
|
2% |
||
Operating profit |
$ 460 |
$ 414 |
11% |
$ 437 |
5% |
||
Embedded Processing: |
|||||||
Revenue |
$ 520 |
$ 539 |
-4% |
$ 509 |
2% |
||
Operating profit |
$ 63 |
$ 113 |
-44% |
$ 51 |
24% |
||
Wireless: |
|||||||
Revenue |
$ 325 |
$ 580 |
-44% |
$ 342 |
-5% |
||
Operating profit (loss) |
$ (53) |
$ 78 |
n/a |
$ (51) |
-4% |
||
Other: |
|||||||
Revenue |
$ 702 |
$ 790 |
-11% |
$ 684 |
3% |
||
Operating profit* |
$ 370 |
$ 209 |
77% |
$ 161 |
130% |
* Includes Acquisition charges and Restructuring charges/other.
Analog: (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog)
- Compared with the year-ago quarter, revenue increased due to the inclusion of a full quarter of Silicon Valley Analog revenue. Revenue from Power Management and High Volume Analog & Logic increased while revenue from High Performance Analog declined.
- Compared with the prior quarter, revenue increased primarily due to growth in High Volume Analog & Logic, as well as Power Management. Revenue from Silicon Valley Analog and High Performance Analog declined.
- Operating profit increased from the year-ago quarter as higher gross profit more than offset higher operating expenses. Operating profit increased from the prior quarter primarily due to operating expense reductions, as well as 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)
- Compared with the year-ago quarter, the decline in revenue was due to lower revenue from products sold into communications infrastructure applications. Revenue from products sold into automotive applications and catalog products increased.
- Compared with the prior quarter, the increase in revenue was due to catalog products. Revenue from products sold into communications infrastructure applications declined, and revenue from products sold into automotive applications was even.
- Operating profit decreased from a year ago primarily due to lower gross profit. Operating profit increased from the prior quarter primarily due to operating expense reductions.
Wireless: (includes OMAP™applications processors, connectivity products and baseband products)
- Compared with both the year-ago and prior quarters, revenue declined primarily due to baseband products. Revenue from connectivity products also declined while revenue from OMAP applications processors increased.
- Operating profit from the year-ago quarter became an operating loss due to lower gross profit. The operating loss increased from the prior quarter due to lower revenue and the associated gross profit.
Other: (includes DLP® products, custom ASIC products, calculators and royalties)
- Compared with the year-ago quarter, revenue was down due to lower DLP revenue, the expiration of transitional supply agreements associated with previously acquired factories, and lower calculator revenue. These more than offset higher revenue from the business interruption insurance proceeds.
- Compared with the prior quarter, revenue was up primarily due to the business interruption insurance proceeds, and to a lesser extent higher royalties and increased calculator revenue. Revenue from DLP products and custom ASIC products declined.
- Operating profit increased from a year ago primarily due to the
Japan pension program change, although lower acquisition charges and lower operating expenses also contributed. Operating profit increased from the prior quarter primarily due to the pension program change, although business interruption insurance proceeds also contributed to a lesser extent.
3Q12 additional financial information
- Orders were
$3.24 billion , up 6 percent from the year-ago quarter and down 5 percent from the prior quarter. - Inventory was
$1.85 billion at the end of the quarter, down$117 million from a year ago primarily due to the fair value write-up of inventory that was acquired from National Semiconductor. Inventory was down$37 million from the prior quarter. - Capital expenditures were
$149 million in the quarter compared with$193 million a year ago and$146 million in the prior quarter. Capital expenditures in the quarter were primarily for semiconductor manufacturing equipment. - In
August 2012 , the company issued$1.5 billion of new long-term debt at an average coupon rate of 1.05%. The company repaid$500 million of commercial paper borrowings in the quarter and has no remaining commercial paper obligations at the end of the quarter. - The company used
$600 million in the quarter to repurchase 20.6 million shares of its common stock and paid dividends of$194 million .
Outlook
For the fourth quarter of 2012, TI expects:
- Revenue:
$2.83 — 3.07 billion - Earnings per share:
$0.23 — 0.31
The fourth quarter's EPS will be negatively affected by about
TI will update its fourth-quarter outlook on
For the full year of 2012, TI expects approximately the following:
- R&D expense:
$1.9 billion - Capital expenditures:
$0.5 billion , down from the prior expectation of$0.7 billion - Depreciation:
$1.0 billion - Annual effective tax rate: 22%, down from the prior expectation of 26%
The tax rate estimate is based on current law and does not assume reinstatement of the federal R&D tax credit, which expired at the end of 2011.
Consolidated Statements of Income (Millions of dollars, except share and per-share amounts) |
||||||
For Three Months Ended |
||||||
Sept. 30, 2012 |
Sept. 30, 2011 |
June 30, 2012 |
||||
Revenue |
$ 3,390 |
$ 3,466 |
$ 3,335 |
|||
Cost of revenue |
1,650 |
1,722 |
1,684 |
|||
Gross profit |
1,740 |
1,744 |
1,651 |
|||
Research and development (R&D) |
463 |
395 |
480 |
|||
Selling, general and administrative (SG&A) |
453 |
388 |
456 |
|||
Restructuring charges/other |
(122) |
-- |
13 |
|||
Acquisition charges |
106 |
147 |
104 |
|||
Operating profit |
840 |
814 |
598 |
|||
Other income (expense), net |
24 |
(19) |
(2) |
|||
Interest and debt expense |
21 |
15 |
20 |
|||
Income before income taxes |
843 |
780 |
576 |
|||
Provision for income taxes |
59 |
179 |
130 |
|||
Net income |
$ 784 |
$ 601 |
$ 446 |
|||
Earnings per common share: |
||||||
Basic |
$ .68 |
$ .52 |
$ .38 |
|||
Diluted |
$ .67 |
$ .51 |
$ .38 |
|||
Average shares outstanding (millions): |
||||||
Basic |
1,130 |
1,144 |
1,140 |
|||
Diluted |
1,141 |
1,157 |
1,154 |
|||
Cash dividends declared per share of common stock |
$ .17 |
$ .13 |
$ .17 |
|||
Percentage of revenue: |
||||||
Gross profit |
51.3% |
50.3% |
49.5% |
|||
R&D |
13.6% |
11.4% |
14.4% |
|||
SG&A |
13.4% |
11.2% |
13.7% |
|||
Operating profit |
24.8% |
23.5% |
17.9% |
|||
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 |
||||||
Consolidated Balance Sheets (Millions of dollars, except share amounts)
|
||||||
Sept. 30, 2012 |
Sept. 30, 2011 |
June 30, 2012 |
||||
Assets |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ 1,210 |
$ 1,581 |
$ 1,192 |
|||
Short-term investments |
2,451 |
1,037 |
1,141 |
|||
Accounts receivable, net of allowances of |
1,623 |
1,784 |
1,629 |
|||
Raw materials |
124 |
148 |
123 |
|||
Work in process |
988 |
1,185 |
1,040 |
|||
Finished goods |
736 |
632 |
722 |
|||
Inventories |
1,848 |
1,965 |
1,885 |
|||
Deferred income taxes |
1,043 |
1,042 |
1,155 |
|||
Prepaid expenses and other current assets |
409 |
303 |
351 |
|||
Total current assets |
8,584 |
7,712 |
7,353 |
|||
Property, plant and equipment at cost |
6,806 |
7,206 |
6,840 |
|||
Less accumulated depreciation |
(2,751) |
(2,667) |
(2,666) |
|||
Property, plant and equipment, net |
4,055 |
4,539 |
4,174 |
|||
Long-term investments |
225 |
350 |
218 |
|||
Goodwill |
4,452 |
4,452 |
4,452 |
|||
Acquisition-related intangibles, net |
2,643 |
3,006 |
2,729 |
|||
Deferred income taxes |
199 |
400 |
288 |
|||
Capitalized software licenses, net |
166 |
199 |
182 |
|||
Overfunded retirement plans |
29 |
28 |
32 |
|||
Other assets |
161 |
70 |
93 |
|||
Total assets |
|
|
|
|||
Liabilities and Stockholders' Equity |
||||||
Current liabilities: |
||||||
Commercial paper borrowings |
$ -- |
$ 1,200 |
$ 500 |
|||
Current portion of long-term debt |
1,500 |
386 |
1,500 |
|||
Accounts payable |
501 |
627 |
555 |
|||
Accrued compensation |
552 |
532 |
454 |
|||
Income taxes payable |
106 |
55 |
101 |
|||
Accrued expenses and other liabilities |
766 |
863 |
711 |
|||
Total current liabilities |
3,425 |
3,663 |
3,821 |
|||
Long-term debt |
4,190 |
4,215 |
2,703 |
|||
Underfunded retirement plans |
350 |
611 |
700 |
|||
Deferred income taxes |
596 |
704 |
596 |
|||
Deferred credits and other liabilities |
550 |
537 |
543 |
|||
Total liabilities |
9,111 |
9,730 |
8,363 |
|||
Stockholders' equity: |
||||||
Preferred stock, Participating cumulative preferred. None issued. |
-- |
-- |
-- |
|||
Common stock, Shares issued: 1,740,552,451; |
1,741 |
1,741 |
1,741 |
|||
Paid-in capital |
1,193 |
1,172 |
1,164 |
|||
Retained earnings |
27,179 |
26,175 |
26,592 |
|||
Less treasury common stock at cost: Shares: 597,902,577; |
(18,093) |
(17,372) |
(17,598) |
|||
Accumulated other comprehensive income (loss), net of taxes |
(617) |
(690) |
(741) |
|||
Total stockholders' equity |
11,403 |
11,026 |
11,158 |
|||
Total liabilities and stockholders' equity |
|
|
|
Consolidated Statements of Cash Flows (Millions of dollars) |
|||||||||
For Three Months Ended |
|||||||||
2012 |
2011 |
June 30, 2012 |
|||||||
Cash flows from operating activities: |
|||||||||
Net income |
$ 784 |
$ 601 |
$ 446 |
||||||
Adjustments to net income: |
|||||||||
Depreciation |
241 |
213 |
241 |
||||||
Stock-based compensation |
66 |
92 |
64 |
||||||
Amortization of acquisition-related intangibles |
86 |
12 |
86 |
||||||
Gains on sales of assets |
-- |
(5) |
-- |
||||||
Deferred income taxes |
119 |
6 |
21 |
||||||
Gain on transfer of |
(144) |
-- |
-- |
||||||
Increase (decrease) from changes in: |
|||||||||
Accounts receivable |
18 |
22 |
(151) |
||||||
Inventories |
37 |
22 |
(32) |
||||||
Prepaid expenses and other current assets |
25 |
1 |
50 |
||||||
Accounts payable and accrued expenses |
(9) |
95 |
(77) |
||||||
Accrued compensation |
95 |
59 |
75 |
||||||
Income taxes payable |
(141) |
14 |
(103) |
||||||
Other |
24 |
8 |
55 |
||||||
Cash flows from operating activities |
1,201 |
1,140 |
675 |
||||||
Cash flows from investing activities: |
|||||||||
Additions to property, plant and equipment |
(149) |
(193) |
(146) |
||||||
Proceeds from asset sales and insurance recovery |
-- |
14 |
-- |
||||||
Purchases of short-term investments |
(1,484) |
(775) |
(415) |
||||||
Proceeds from short-term investments |
173 |
1,638 |
853 |
||||||
Purchases of long-term investments |
-- |
(1) |
-- |
||||||
Proceeds from long-term investments |
20 |
11 |
29 |
||||||
Business acquisitions, net of cash acquired |
-- |
(5,390) |
-- |
||||||
Cash flows from investing activities |
(1,440) |
(4,696) |
321 |
||||||
Cash flows from financing activities: |
|||||||||
Proceeds from issuance of debt |
1,492 |
1,200 |
-- |
||||||
Issuance costs for long-term debt |
(7) |
-- |
-- |
||||||
Repayment of debt and commercial paper borrowings |
(500) |
-- |
(575) |
||||||
Dividends paid |
(194) |
(148) |
(195) |
||||||
Proceeds from common stock transactions |
63 |
33 |
68 |
||||||
Excess tax benefit from share-based payments |
3 |
1 |
5 |
||||||
Stock repurchases |
(600) |
(450) |
(300) |
||||||
Cash flows from financing activities |
257 |
636 |
(997) |
||||||
Net change in cash and cash equivalents |
18 |
(2,920) |
(1) |
||||||
Cash and cash equivalents, beginning of period |
1,192 |
4,501 |
1,193 |
||||||
Cash and cash equivalents, end of period |
$ 1,210 |
$ 1,581 |
$ 1,192 |
||||||
Certain amounts in prior periods' financial statements have been reclassified to conform to the current presentation. |
|||||||||
Non-GAAP Measure — Free Cash Flow
The term "free cash flow" is a non-GAAP measure to provide investors additional insight into Cash flow from operations less capital expenditures. The table below provides a reconciliation of the non-GAAP item.
|
||||||||||
For Three Months Ended |
||||||||||
Sept. 30, 2012 |
June 30, 2012 |
Delta |
||||||||
Cash flows from operating activities |
$ 1,201 |
$ 675 |
||||||||
Less Additions to property, plant and equipment |
(149) |
(146) |
||||||||
Free cash flow |
$ 1,052 |
$ 529 |
$ 523 |
|||||||
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 and consumer electronics;
- 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, 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 National Semiconductor's operations, product lines and technologies, and to realize opportunities for growth and cost savings from the acquisition; 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-Q for the quarter ended
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