d10q.htm
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended March 31, 2008
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number
001-03761
TEXAS INSTRUMENTS
INCORPORATED
(Exact Name of Registrant as
Specified in Its Charter)
|
|
Delaware
|
75-0289970
|
(State of
Incorporation)
|
(I.R.S. Employer Identification
No.)
|
|
|
12500 TI Boulevard, P.O. Box
660199, Dallas, Texas
|
75266-0199
|
(Address of principal executive
offices)
|
(Zip
Code)
|
Registrant’s telephone number,
including area code 972-995-3773
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes S No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer S
|
|
Accelerated
filer o
|
Non-accelerated
filer o
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
S
1,322,735,591
Number of
shares of Registrant’s common stock outstanding as of
March 31,
2008
PART I - FINANCIAL
INFORMATION
ITEM 1. Financial
Statements.
TEXAS INSTRUMENTS INCORPORATED AND
SUBSIDIARIES
Consolidated Statements of
Income
(Millions of dollars, except share
and per-share amounts)
|
|
For Three Months Ended March
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$ |
3,272
|
|
|
$ |
3,191
|
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of revenue
(COR)
|
|
|
1,516
|
|
|
|
1,554
|
|
Research and development
(R&D)
|
|
|
514
|
|
|
|
552
|
|
Selling, general and
administrative (SG&A)
|
|
|
435
|
|
|
|
405
|
|
Total
|
|
|
|
|
|
|
|
|
Profit
from operations
|
|
|
807
|
|
|
|
680
|
|
Other
income (expense) net
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
|
840
|
|
|
|
719
|
|
Provision
for income taxes
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
662
|
|
|
|
516
|
|
Income
from discontinued operations, net of taxes
|
|
|
--
|
|
|
|
--
|
|
Net
income
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
$ |
|
|
|
$ |
|
|
Net income
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
|
|
|
$ |
|
|
Net income
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding (millions):
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per share of common stock
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
TEXAS INSTRUMENTS INCORPORATED AND
SUBSIDIARIES
Consolidated Statements of
Comprehensive Income
(Millions of
dollars)
|
|
For Three Months Ended March
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
662
|
|
|
$ |
516
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Changes
in available-for-sale investments:
|
|
|
|
|
|
|
|
|
Adjustment,
net of taxes
|
|
|
(13 |
) |
|
|
1
|
|
Reclassification
of recognized transactions, net of taxes
|
|
|
(3 |
) |
|
|
--
|
|
Unrecognized
net actuarial loss of defined benefit plans:
|
|
|
|
|
|
|
|
|
Adjustment,
net of taxes
|
|
|
(22 |
) |
|
|
--
|
|
Reclassification
of recognized transactions, net of taxes
|
|
|
5
|
|
|
|
7
|
|
Unrecognized
prior service cost of defined benefit plans:
|
|
|
|
|
|
|
|
|
Adjustment,
net of
taxes
|
|
|
|
|
|
|
|
|
Total
|
|
|
(27 |
) |
|
|
|
|
Total
from continuing operations
|
|
|
635
|
|
|
|
524
|
|
Income
from discontinued operations, net of taxes
|
|
|
--
|
|
|
|
--
|
|
Total
comprehensive income
|
|
$ |
|
|
|
$ |
|
|
See accompanying
notes.
TEXAS INSTRUMENTS INCORPORATED AND
SUBSIDIARIES
Consolidated Balance
Sheets
(Millions of dollars, except share
amounts)
|
|
March 31,
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
1,450
|
|
|
$ |
1,328
|
|
Short-term
investments
|
|
|
426
|
|
|
|
1,596
|
|
Accounts receivable, net of
allowances of ($25) and ($26)
|
|
|
1,669
|
|
|
|
1,742
|
|
Raw materials
|
|
|
111
|
|
|
|
105
|
|
Work in process
|
|
|
943
|
|
|
|
876
|
|
Finished goods
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
|
|
Deferred income
taxes
|
|
|
659
|
|
|
|
654
|
|
Prepaid expenses and other
current assets
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
|
|
|
|
|
|
Property,
plant and equipment at cost
|
|
|
7,493
|
|
|
|
7,568
|
|
Less
accumulated depreciation
|
|
|
(3,908 |
) |
|
|
(3,959 |
) |
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
791
|
|
|
|
267
|
|
Goodwill
|
|
|
838
|
|
|
|
838
|
|
Acquisition-related
intangibles
|
|
|
105
|
|
|
|
115
|
|
Deferred
income taxes
|
|
|
618
|
|
|
|
510
|
|
Capitalized
software licenses, net
|
|
|
225
|
|
|
|
227
|
|
Overfunded
retirement plans
|
|
|
122
|
|
|
|
105
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
680
|
|
|
$ |
657
|
|
Accrued expenses and other
liabilities
|
|
|
871
|
|
|
|
1,117
|
|
Income taxes
payable
|
|
|
218
|
|
|
|
53
|
|
Accrued profit sharing and
retirement
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
|
|
|
|
|
|
Underfunded
retirement plans
|
|
|
191
|
|
|
|
184
|
|
Deferred
income taxes
|
|
|
60
|
|
|
|
49
|
|
Deferred
credits and other liabilities
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
|
|
|
|
|
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: March 31, 2008 – 1,739,660,927; December 31, 2007 –
1,739,632,601
|
|
|
1,740
|
|
|
|
1,740
|
|
Paid-in capital
|
|
|
926
|
|
|
|
931
|
|
Retained
earnings
|
|
|
20,318
|
|
|
|
19,788
|
|
Less treasury common stock at
cost. Shares: March
31, 2008 – 416,925,336; December 31, 2007 – 396,421,798
|
|
|
(12,776 |
) |
|
|
(12,160 |
) |
Accumulated other comprehensive
loss, net of taxes
|
|
|
(351 |
) |
|
|
(324 |
) |
Total stockholders’
equity
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
|
|
|
$ |
|
|
See accompanying
notes.
TEXAS INSTRUMENTS INCORPORATED AND
SUBSIDIARIES
Consolidated Statements of Cash
Flows
(Millions of dollars)
|
|
For Three Months Ended March
31,
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
662
|
|
|
$ |
516
|
|
Adjustments
to reconcile net income to cash provided by operating activities
of continuing operations:
|
|
|
|
|
|
|
|
|
(Income)
from discontinued operations
|
|
|
--
|
|
|
|
--
|
|
Depreciation
|
|
|
241
|
|
|
|
252
|
|
Stock-based
compensation
|
|
|
54
|
|
|
|
78
|
|
Amortization
of acquisition-related intangibles
|
|
|
10
|
|
|
|
14
|
|
Loss
on sale of assets
|
|
|
6
|
|
|
|
--
|
|
Deferred
income taxes
|
|
|
(74 |
) |
|
|
(3 |
) |
Increase
(decrease) from changes in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
89
|
|
|
|
17
|
|
Inventories
|
|
|
(160 |
) |
|
|
28
|
|
Prepaid
expenses and other current assets
|
|
|
(46 |
) |
|
|
(79 |
) |
Accounts
payable and accrued expenses
|
|
|
(179 |
) |
|
|
(167 |
) |
Income
taxes payable
|
|
|
165
|
|
|
|
33
|
|
Accrued
profit sharing and retirement
|
|
|
(122 |
) |
|
|
(111 |
) |
Excess
tax benefit from share-based payments
|
|
|
(13 |
) |
|
|
(34 |
) |
Change
in funded status of retirement plans and accrued
retirement
|
|
|
(4 |
) |
|
|
1
|
|
Other
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities of continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(219 |
) |
|
|
(179 |
) |
Purchases
of short-term investments
|
|
|
(362 |
) |
|
|
(846 |
) |
Sales
and maturities of short-term investments
|
|
|
958
|
|
|
|
1,011
|
|
Purchases
of long-term investments
|
|
|
(2 |
) |
|
|
(5 |
) |
Sales
of long-term investments
|
|
|
16
|
|
|
|
2
|
|
Acquisitions,
net of cash acquired
|
|
|
|
|
|
|
(27 |
) |
Net
cash provided by (used in) investing activities of continuing
operations
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(133 |
) |
|
|
(58 |
) |
Sales
and other common stock transactions
|
|
|
76
|
|
|
|
154
|
|
Excess
tax benefit from share-based payments
|
|
|
13
|
|
|
|
34
|
|
Stock
repurchases
|
|
|
(874 |
) |
|
|
(857 |
) |
Net
cash used in financing activities of continuing operations
|
|
|
(918 |
) |
|
|
(727 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
|
|
|
|
(1 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
122
|
|
|
|
(218 |
) |
Cash
and cash equivalents , January 1
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, March 31
|
|
$ |
|
|
|
$ |
|
|
See accompanying
notes.
TEXAS INSTRUMENTS INCORPORATED AND
SUBSIDIARIES
Notes to Financial
Statements
1.
|
Description of
Business and Significant Accounting Policies and Practices. Texas Instruments
(TI) makes, markets and sells high-technology components; more than 50,000
customers all over the world buy our
products.
|
Acquisitions - In the first
quarter of 2007, we made an asset acquisition that was integrated into the
Semiconductor business segment.
Basis of Presentation - The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the U.S. (US GAAP) and on the same
basis as the audited financial statements included in our annual report on Form
10-K for the year ended December 31, 2007. The consolidated
statements of income, statements of comprehensive income and statements of cash
flows for the periods ended March 31, 2008 and 2007, and the balance sheet as of
March 31, 2008, are not audited but reflect all adjustments that are of a normal
recurring nature and are necessary for a fair statement of the results of the
periods shown. The consolidated balance sheet as of December 31,
2007, presented herein is derived from the audited consolidated balance sheet
presented in our annual report on Form 10-K at that date. Certain amounts
in the prior periods' financial statements have been reclassified to conform to
the current period presentation. Certain information and note disclosures
normally included in annual consolidated financial statements have been omitted
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission. Because the consolidated interim financial statements do not
include all of the information and notes required by US GAAP for a complete set
of financial statements, they should be read in conjunction with the audited
consolidated financial statements and notes included in our annual report on
Form 10-K for the year ended December 31, 2007. The results for the
three-month period are not necessarily indicative of a full year's
results.
The
consolidated financial statements include the accounts of all
subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. All dollar amounts in the financial statements and
tables in the notes, except share and per-share amounts, are stated in millions
of U.S. dollars unless otherwise indicated.
Changes in Accounting Standards –
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157,“Fair Value
Measurements,”
which provides guidance on how to measure assets and liabilities that are
recorded at fair value. SFAS 157 does not expand the use of fair
value to any new circumstances, but does require additional disclosures in both
annual and quarterly reports. We adopted SFAS 157 and its related
amendments for financial assets and liabilities effective as of January 1, 2008
(see Note 5 below). SFAS 157 will be effective for non-financial
assets and liabilities in financial statements issued for fiscal years beginning
after November 15, 2008.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – An Amendment of FASB Statement No.
133.” This standard applies to derivative instruments,
nonderivative instruments that are designated and qualify as hedging instruments
and related hedged items accounted for under SFAS 133. SFAS 161 does
not change the accounting for derivatives and hedging activities, but requires
enhanced disclosures concerning the effect on the financial statements from
their use. SFAS 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008.
2.
|
Earnings Per Share
(EPS). Computation and reconciliation of earnings per
common share from continuing operations are as
follows:
|
|
|
For Three Months
Ended
|
|
|
For Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
$ |
662
|
|
|
|
1,327
|
|
|
$ |
.50
|
|
|
$ |
516
|
|
|
|
1,442
|
|
|
$ |
.36
|
|
Dilutives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
3.
|
Stock-based
Compensation. We have several stock-based employee
compensation plans, which are more fully described in Note 9 in our 2007
annual report on Form 10-K.
|
The
amounts of stock-based compensation expense recognized in the periods presented
are as follows:
|
|
For Three Months Ended March
31,
|
|
|
|
|
|
|
|
|
Stock-based compensation
expense recognized:
|
|
|
|
|
|
|
COR
|
|
$ |
10
|
|
|
$ |
15
|
|
R&D
|
|
|
16
|
|
|
|
23
|
|
SG&A
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
The
amounts above include the impact of recognizing compensation expense related to
restricted stock units (RSUs), non-qualified stock options and stock options
offered under the employee stock purchase plan. Stock-based
compensation expense has not been allocated between segments, but is reflected
in Corporate.
|
4.
|
Investment in
Auction-Rate Securities. As of December 31, 2007, we had
$1.04 billion invested in auction-rate securities. As of March 31,
2008, we had sold down our holdings of these auction-rate securities by
$473 million through the normal auction process. In mid-February
2008, liquidity issues in the global credit markets resulted in the
failure of auctions representing substantially all of the auction-rate
securities we hold, as the amount of securities submitted for sale in
those auctions exceeded the amount of
bids.
|
Substantially
all of our auction-rate investments are backed by pools of student loans
guaranteed by the U.S. Department of Education and we continue to believe that
the credit quality of these securities is high based on this
guarantee. As of March 31, 2008, these securities were all rated
AAA/Aaa by the major credit rating agencies. A small number of our
auction-rate investments are covered by bond insurance and were rated Aaa by
Moody’s and AA by Fitch as of March 31, 2008. To date we have
collected all interest payable on all of our auction-rate securities when due
and expect to continue to do so in the future. For each unsuccessful
auction, the interest rate moves to a maximum rate defined for each security,
generally reset periodically at a level higher than defined short-term interest
benchmarks. The principal associated with failed auctions will not be
accessible until successful auctions occur, a buyer is found outside of the
auction process, the issuers establish a different form of financing to replace
these securities, issuers repay principal over time from cash flows prior to
final maturity, or final payments come due according to contractual maturities
ranging from 15 to 40 years. We understand that issuers and financial
markets are working on alternatives that may improve liquidity, although it is
not yet clear when or if such efforts will be successful. We expect that
we will receive the principal associated with these auction-rate securities
through one of the means described above.
Based on
the fair value determinations described in Note 5 below, the fair value of our
investment in auction-rate securities at March 31, 2008, was $551 million
compared with a par value of $571 million. This $20 million
difference is considered temporary and is recorded as an unrealized loss, net of
taxes, in accumulated other comprehensive income on the balance
sheet.
While the
recent auction failures will limit our ability to liquidate these investments
for some period of time, we do not believe the auction failures will materially
impact our ability to fund our working capital needs, capital expenditures,
dividend payments or other business requirements. However, as it is
not certain when liquidity will return to the markets, or other secondary
markets will become available, we have reclassified our remaining investments in
auction-rate securities of $551 million from short-term investments to long-term
investments as of March 31, 2008.
5.
|
Fair Value
Measurement. As discussed in Note 1, SFAS 157
became effective for measuring and reporting financial assets and
liabilities in our financial statements beginning as of January 1,
2008.
|
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date.
SFAS 157
establishes a three-level hierarchy for disclosure to show the extent and level
of judgment used to estimate fair value measurements.
Level 1 –
Inputs used to measure fair value are unadjusted quoted prices that are
available in active markets for the identical assets or liabilities as of the
reporting date.
Level 2 –
Inputs used to measure fair value, other than quoted prices included in Level 1,
are either directly or indirectly observable as of the reporting date through
correlation with market data, including quoted prices for similar assets and
liabilities in active markets and quoted prices in markets that are not
active. Level 2 also includes assets and liabilities that are valued
using models or other pricing methodologies that do not require significant
judgment since the input assumptions used in the models, such as interest rates
and volatility factors, are corroborated by readily observable data from
actively quoted markets for substantially the full term of the financial
instrument.
Level 3 –
Inputs used to measure fair value are unobservable inputs that are supported by
little or no market activity and reflect the use of significant management
judgment. These values are generally determined using pricing models
for which the assumptions utilize management’s estimates of market participant
assumptions.
Our
investments in student loan auction-rate securities are our only Level 3 assets,
and were transferred from Level 2 because quoted prices from broker-dealers were
unavailable due to events described in Note 4. We used a
discounted cash flow (DCF) model to determine the estimated fair value of these
investments as of March 31, 2008. The assumptions used in preparing
the DCF model included estimates for the amount and timing of future interest
and principal payments and the rate of return required by investors to own
these securities in the current environment. In making these
assumptions we considered relevant factors including: the formula
applicable to each security which defines the interest rate paid to investors in
the event of a failed auction; forward projections of the interest rate
benchmarks specified in such formulas; the likely timing of principal
repayments; the probability of full repayment considering the guarantees by
the U.S. Department of Education of the underlying student
loans, guarantees by other third parties, and additional credit
enhancements provided through other means; and, publicly available pricing data
for recently issued student loan asset-backed securities which are not subject
to auctions. Our estimate of the rate of return required by investors
to own these securities also considers the current reduced liquidity for
auction-rate securities.
The table
below sets forth, by level, our financial assets and liabilities that were
accounted for at fair value as of March 31, 2008. The table does not
include cash on hand and also does not include assets and liabilities which are
measured at historical cost or any basis other than fair
value.
|
|
Portion of Carrying Value
Measured
at Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items measured at fair
value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate commercial
paper
|
|
$ |
100
|
|
|
$ |
--
|
|
|
$ |
100
|
|
|
$ |
--
|
|
U.S.
Treasury and government agency securities
|
|
|
432
|
|
|
|
432
|
|
|
|
--
|
|
|
|
--
|
|
Money market
funds
|
|
|
739
|
|
|
|
739
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
23
|
|
|
|
--
|
|
|
|
23
|
|
|
|
--
|
|
Mortgage-backed
securities – Government Sponsored
Enterprise
(GSE) guaranteed
|
|
|
183
|
|
|
|
--
|
|
|
|
183
|
|
|
|
--
|
|
Mortgage-backed securities –
senior bonds
|
|
|
208
|
|
|
|
--
|
|
|
|
208
|
|
|
|
--
|
|
Other
|
|
|
12
|
|
|
|
3
|
|
|
|
9
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction–rate
securities
|
|
|
551
|
|
|
|
--
|
|
|
|
15
|
|
|
|
536
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
liabilities
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the change in the fair values for Level 3 items for
the quarter ended March 31, 2008.
|
|
|
|
Changes in fair value during
the period ended March 31, 2008 (pre-tax):
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
$ |
--
|
|
Transfers into Level
3
|
|
|
556
|
|
Unrealized loss - included in
other comprehensive income
|
|
|
(20 |
) |
Ending Balance
|
|
$ |
|
|
|
|
|
|
|
All of
our assets measured at fair value, except for investments in mutual funds,
are classified as available-for-sale securities. Adjustments to fair
value of these investments are recorded as an increase or decrease, net of
taxes, in accumulated other comprehensive income except where losses are
consider to be other-than-temporary, in which case the losses are recorded in
other income (expense) net. Our investments in mutual funds, which
are intended to generate returns that offset changes in certain liabilities
related to deferred compensation arrangements, are classified as trading
securities. Adjustments to fair value of both the mutual funds and
the related deferred compensation liabilities are recorded in selling, general
and administrative expense.
6.
|
Post-employment
Benefit Plans. Components of net periodic employee
benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For three months ended March
31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
6
|
|
|
$ |
6
|
|
|
$ |
1
|
|
|
$ |
1
|
|
|
$ |
10
|
|
|
$ |
10
|
|
Interest
cost
|
|
|
13
|
|
|
|
11
|
|
|
|
7
|
|
|
|
6
|
|
|
|
15
|
|
|
|
13
|
|
Expected
return on plan assets
|
|
|
(11 |
) |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(20 |
) |
|
|
(18 |
) |
Amortization
of prior service cost
|
|
|
--
|
|
|
|
--
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Recognized
net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7.
|
Income
Taxes. Federal income taxes for the interim periods
presented have been included in the accompanying financial statements on
the basis of an estimated annual effective tax rate. As of March 31,
2008, the estimated annual effective tax rate for 2008 is about 31
percent. The estimated annual effective tax rate for 2008
differs from the 35 percent statutory corporate tax rate primarily due to
the effects of non-U.S. tax rates. The first quarter of 2008
includes a discrete tax benefit of $81 million primarily due to our
decision to indefinitely reinvest the accumulated earnings of a non-U.S.
subsidiary.
|
8.
|
Contingencies. We
routinely sell products with a limited intellectual property
indemnification included in the terms of sale. Historically, we
have had only minimal and infrequent losses associated with these
indemnities. Consequently, any future liabilities brought about
by the intellectual property indemnities cannot reasonably be estimated or
accrued.
|
We accrue
for known product-related claims if a loss is probable and can be reasonably
estimated. During the periods presented, there have been no material
accruals or payments regarding product warranty or product liability, and
historically we have experienced a low rate of payments on product
claims. Consistent with general industry practice, we enter into
formal contracts with certain customers in which the parties define warranty
remedies. Typically, under these agreements, our warranty for
semiconductor products covers three years; an obligation to repair, replace or
refund; and a maximum payment obligation tied to the price paid for our
products. In some cases, product claims may be disproportionate to the
price of our products.
We are
subject to various other legal and administrative
proceedings. Although it is not possible to predict the outcome of
these matters, we believe that the results of these proceedings will not have a
material adverse effect upon our financial condition, results of operations or
liquidity.
Discontinued Operations Indemnity –
In connection with the sale of the former Sensors & Controls business
to an affiliate of Bain Capital, LLC in 2006, we have agreed to indemnify the
former business, renamed Sensata Technologies, Inc., for certain specified
litigation matters, as well as other liabilities, including environmental
liabilities. Our indemnification obligations with respect to breaches
of representations and warranties and the specified litigation matters are,
generally, subject to a total deductible of $30 million and our maximum
potential exposure is limited to $300 million. As of March 31, 2008, there
were no significant liabilities recorded under these indemnification
obligations.
9.
|
Segment
Data. We have two reportable operating
segments: Semiconductor and Education
Technology.
|
Segment
information for continuing operations is as follows:
|
|
For Three Months Ended March
31,
|
|
|
|
|
|
|
|
|
Segment Net
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
$ |
3,191
|
|
|
$ |
3,115
|
|
Education
Technology
|
|
|
|
|
|
|
|
|
Total
net
revenues
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended March
31,
|
|
|
|
|
|
|
|
|
Segment Profit
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
$ |
927
|
|
|
$ |
831
|
|
Education
Technology
|
|
|
18
|
|
|
|
16
|
|
Corporate
|
|
|
(138 |
) |
|
|
(167 |
) |
Profit
from
operations
|
|
$ |
|
|
|
$ |
|
|
ITEM 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
The
following should be read in conjunction with the Financial Statements and the
related Notes that appear elsewhere in this document. All dollar amounts
in the tables in this discussion are stated in millions of U.S. dollars, except
per-share amounts. All amounts in this discussion reference continuing
operations unless otherwise noted.
Overview
At Texas
Instruments, we design, make and sell high-technology components; more than
50,000 customers all over the world buy our products. We have two business
segments: Semiconductor and Education Technology. Semiconductor is by far
the larger of these segments, accounting for 96 percent of our revenue in
2007. This segment sells integrated circuits, or semiconductors, to
electronics designers and manufacturers, many of whom innovate rapidly and bring
new products to market multiple times a year. Our Education Technology
segment accounts for the remaining 4 percent of our revenue and sells
calculators and related technologies to consumers and educators.
The
details relevant to each segment are discussed below.
Semiconductor
Our
Semiconductor segment invents and produces a variety of semiconductors, commonly
called “chips.” These semiconductors are used to accomplish many different
things, such as processing data, canceling noise, converting signals, improving
resolution and distributing power. We are among the world’s largest
semiconductor companies as measured by revenue, having been ranked in the top
five for the past decade. Our Semiconductor segment can be affected
by cyclical upturns and downturns characteristic of our markets, which sometimes
cause wide swings in growth rates from year to year. Prices and
manufacturing costs of Semiconductor products tend to decline over
time.
Products
Over the
past decade, we have focused most of the resources of our Semiconductor segment
on two areas – analog semiconductors and digital signal processors
(DSPs). In 2007, about 80 percent of the segment’s revenue came from
sales of these two broad types of semiconductors. In general, analog
semiconductors and DSPs convert and process signals very quickly, enabling
people to talk on a cell phone, hold a real-time videoconference over the
Internet, or overcome deafness with a digital hearing aid, for
example. Our portfolio includes products that are central to almost
all electronic equipment.
Analog
semiconductors are responsible for changing real-world signals – such as sound,
temperature, pressure or images – by conditioning them, amplifying them and
often converting them to a stream of digital data so the signals can be
processed by DSPs. Analog semiconductors also manage power
distribution and consumption. Analog semiconductors can have long
life cycles that reach into decades. We introduce hundreds of new
types of analog semiconductors every year.
Our
analog semiconductors can be put into two primary categories: custom products
and standard products; most of our standard products are high-performance
analog. Custom products are designed for specific applications for
specific customers. Standard products are used by multiple customers,
though some are used only in specific applications and some are used in many
different applications. Almost all of our custom and standard
products are proprietary in nature, which makes them difficult to copy or
imitate. Both also typically deliver good gross margins, with margin
on standard products being somewhat higher. While our analog
portfolio is primarily comprised of custom and standard products, we also
manufacture and sell another category of analog semiconductors known as
commodity products. These are sold in high volume to a broad range of
customers for use in many different applications. Commodity products,
unlike custom and standard products, are easily imitated, which means
differentiation is generally achieved by price and availability.
The size
of the total market for analog semiconductors was about $36 billion in 2007, and
we supplied an estimated 13 percent of this market. Our share of this
market has increased over the past five years as we have expanded our portfolio
with higher performance products and grown the size and reach of our sales
force. We believe that with continued improvements and focus, we can
keep increasing our share of the market for analog semiconductors.
DSPs are
semiconductors that perform mathematical computations almost instantaneously
with a high level of precision. They use complex algorithms to
process and improve a stream of digital data. DSPs are ideal for
applications that require precise, real-time processing, such as cell phone
conversations or receiving digital radio transmissions. The
processing speed
and power
efficiency of a DSP are important characteristics that often indicate the
advanced technical nature of the device. Our portfolio includes DSPs
that are among the world’s fastest and most power-efficient.
Our
portfolio of DSPs includes three categories of products: custom products,
application-specific products and standard products. Custom products
are designed for specific, individual customers with very high volumes in
established markets. Application-specific products are designed for
use by multiple customers in established and emerging
markets. Standard products are sold into a broad range of
applications and often seed the next generations of innovation in
signal-processing equipment.
We are
the world’s largest supplier of DSPs with an estimated 65 percent share of the
market in 2007. Most of this revenue comes from custom
DSPs.
A digital
television broadcast provides an example of how analog semiconductors and DSPs
work together in enabling modern electronic equipment. As a camera
focuses on an event, its sensors and microphones send real-world signals to
analog semiconductors, which condition and amplify the signals and convert the
signals into digital data. A DSP then compresses and enhances the
data for transmission as a television broadcast. Next, a television
receives the broadcasted signal and its chips reverse the process, outputting
the resulting sound and picture. Our portfolio of semiconductor
products includes analog and DSP chips that are able to accomplish all of the
processing steps described in real time.
Inventory
We strive
to carry levels of inventory that let us meet our customers’ needs as well as
fill orders when demand is unexpectedly strong. Having products when
and where the customer needs them is an important element in gaining market
share.
Our
inventory practices vary by type of product. For standard products,
where the risk of obsolescence is low, we generally carry higher levels of
inventory. These products usually have many customers and long life
cycles and are often ordered in small quantities. Standard product
inventory is sometimes held in unfinished form, giving us greater flexibility to
meet final package and test configurations. Examples of these
products are high-performance analog, standard DSP and standard
microcontrollers. (A microcontroller is a microprocessor designed to
control a very specific task for electronic equipment.) For custom
high-volume products, where the risk of obsolescence is higher, we carry lower
levels of inventory when possible. These products usually have a
single customer, are sold in high volumes and have comparatively shorter life
cycles. Life cycles of these products are often determined by
end-equipment upgrade cycles and can be as short as 12 to 24
months. Examples of these products are digital baseband processors
for cell phones and custom application-specific analog and digital
products. In addition, our inventory levels have generally increased
over time due to the impact of consignment programs at our largest customers,
our distributors’ desire to carry less inventory and our increased mix of
standard products such as high-performance analog.
Manufacturing
We own
and operate semiconductor manufacturing sites in North America, Asia and
Europe. Our facilities require substantial investment to construct
and are largely fixed-cost assets once in operation. Because we own
much of our manufacturing capacity, a significant portion of our operating costs
is fixed. In general, these costs do not decline with reductions in
customer demand or utilization of capacity, potentially hurting our profit
margins. Conversely, as product demand rises and factory utilization
increases, the fixed costs are spread over increased output, potentially
benefiting our profit margins.
There is
an inherent difference in the cost to manufacture analog semiconductors and
DSPs. DSPs generally are on the leading edge of technology, and
consequently, they require the most advanced and expensive manufacturing
processes and equipment. Additionally, digital chips tend to evolve
quickly to more advanced technology levels, requiring new production processes
and new equipment every few years. As a result, maintaining an
industry leadership position in digital manufacturing requires significant
capital spending, along with investment in research and development, in order to
develop new production processes and manufacturing capabilities. To
reduce the dollars we must spend to produce digital chips, we manufacture some
of our products at foundries that are owned and operated by outside
parties. Foundries manufactured about 50 percent of our advanced
digital chips in 2007.
In
contrast to our DSPs, our analog semiconductors typically require a lower level
of investment in manufacturing processes and equipment. While analog
chips benefit from unique, proprietary manufacturing processes, these processes
can be applied using older, less expensive equipment. In addition,
these processes and equipment remain usable for much longer than digital
manufacturing processes and equipment. Consequently, the level of
capital and manufacturing research and development spending needed to support
analog manufacturing is considerably less than is needed for an equivalent level
of digital manufacturing. We manufacture a significant majority of
our analog chips in our own factories.
In
addition to using foundries to produce advanced digital chips, we determined in
2007 to work with foundries to develop the wafer fabrication manufacturing
process technologies used in the production of digital chips. Such
technologies historically were developed by us and a handful of other large
semiconductor companies. But as foundries have become more
sophisticated, they now can, and do, develop the same technologies, on the same
schedule, with the same capabilities and quality. As a result, it is
now more efficient and cost-effective for us to work collaboratively with
foundries to develop new digital manufacturing process technologies and avoid
duplication of research and investment. We substantially completed
this shift in 2007. As we have decreased our spending on digital
manufacturing research and development, we have increased spending on our analog
manufacturing, where we remain able to differentiate our products through
process technologies.
Education
Technology
Our
Education Technology segment is the world’s leading supplier of handheld
graphing calculators. It also designs business and scientific
calculators, as well as a wide range of advanced classroom tools that help
students and teachers explore math and science interactively. Our
products are marketed to consumers through retailers and to schools through
instructional dealers. The Education Technology segment has an annual
pattern of revenue that is tied to the back-to-school season. As a
result, revenue is at its highest in the second and third
quarters. This segment represented 4 percent of our revenue in
2007. Prices of Education Technology products tend to be
stable.
Tax
Implications
We
operate in a number of tax jurisdictions and are subject to several types of
taxes including those based on income, capital, property and payroll, and sales
and other transactional taxes. The timing of the final determination
of our tax liabilities varies among the various jurisdictions and their taxing
authorities. As a result, during any particular reporting period, we
might reflect in our financial statements one or more tax refunds or
assessments, or changes to tax liabilities, involving one or more taxing
authorities.
First-Quarter
2008 Results
Our
financial results for the first quarter reflect our strengthening position in
the market for analog semiconductors.
Our
revenue was up 3 percent from the year-ago quarter, due to 20 percent growth in
shipments resulting from increased demand for our high-performance analog
semiconductors. Our operating profit grew 19 percent. Analog is
making us stronger and will be a significant growth opportunity for a very long
time. Analog goes into almost every piece of electronic equipment
that is made, and we have the technology and the manufacturing power to serve
much more of this market than we are addressing today. Analog also
has clear benefits for our operating profit, which has grown faster than
revenue, and for our cash flow, which we can return to shareholders or reinvest
in growth.
Compared
with the fourth quarter, our revenue declined 8 percent primarily due to lower
shipments resulting from decreased demand for our products used in cell phones,
especially high-end, or 3G, cell phones.
We
believe our long-term opportunity is excellent. We continue to do the
things needed to be the better choice for our customers, such as adding sales
and applications engineers, investing in new products, and increasing
assembly/test capability.
TEXAS
INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Statements
of Income – Selected Items
(In
millions, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$ |
3,272
|
|
|
$ |
3,556
|
|
|
$ |
3,191
|
|
Cost
of revenue (COR)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,756
|
|
|
|
1,926
|
|
|
|
1,637
|
|
Research
and development (R&D)
|
|
|
514
|
|
|
|
508
|
|
|
|
552
|
|
Selling,
general and administrative (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
from operations
|
|
|
807
|
|
|
|
996
|
|
|
|
680
|
|
Other
income (expense) net
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
|
840
|
|
|
|
1,042
|
|
|
|
719
|
|
Provision
for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
662
|
|
|
|
753
|
|
|
|
516
|
|
Income
from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net income
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net income
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per share of common stock
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
53.7 |
% |
|
|
54.2 |
% |
|
|
51.3 |
% |
R&D
|
|
|
15.7 |
% |
|
|
14.3 |
% |
|
|
17.3 |
% |
SG&A
|
|
|
13.3 |
% |
|
|
11.9 |
% |
|
|
12.7 |
% |
Operating
profit
|
|
|
24.7 |
% |
|
|
28.0 |
% |
|
|
21.3 |
% |
Details of Financial
Results
Revenue
was $3.27 billion, up $81 million, or 3 percent, from the year-ago
quarter. Compared with the prior quarter, revenue decreased $284
million, or 8 percent.
Gross
profit for the first quarter of 2008 was $1.76 billion, or 53.7 percent of
revenue. Our profitability has been improving due to a richer mix of
more profitable products. Gross profit increased $119 million from
the year-ago quarter and declined $170 million from the prior
quarter.
Operating
expenses for the first quarter of 2008 were $514 million for R&D and $435
million for SG&A. R&D expense decreased $38 million from a
year ago as we continue to benefit from our collaborative work with foundries on
advanced digital process technologies. R&D expense increased $6
million from the prior quarter due to seasonally higher pay and benefits,
partially offset by lower product development costs. SG&A expense
increased $30 million from the year-ago quarter primarily due to higher
investments in field sales and customer support, especially for emerging regions
of the world.
SG&A
expense increased $13 million from the prior quarter due to seasonally higher
pay and benefits, partially offset by lower advertising expense.
Operating
profit for the first quarter was $807 million, or 24.7 percent of
revenue. This was an increase of $127 million from the year-ago
quarter due to higher gross profit. Operating profit decreased $189
million from the prior quarter due to lower gross profit.
Other
income (expense) net for the first quarter was $33 million. This was
down $6 million from the year-ago quarter and down $13 million from the prior
quarter due to lower interest income.
As of
March 31, 2008, the estimated annual effective tax rate for 2008 is expected to
be about 31 percent (see Note 7 to the Financial Statements for additional
information). The tax rate is based on current tax law and does not
assume reinstatement of the federal research tax credit, which expired at the
end of 2007.
Quarterly
income taxes are calculated using the estimated annual effective tax
rate.
The tax
provision for the first quarter was $178 million, which includes a discrete tax
benefit of $81 million. The discrete tax benefit was primarily due to
our decision to indefinitely reinvest the accumulated earnings of a non-U.S.
subsidiary. Our tax provision in the fourth quarter of 2007 included
a discrete tax benefit of $11 million.
Income
from continuing operations was $662 million, an increase of $146 million from
the year-ago quarter and a decrease of $91 million from the prior
quarter.
Earnings
per share (EPS) for the first quarter were $0.49 and included a discrete tax
benefit of $0.06. EPS increased $0.14 from the year-ago quarter and
decreased $0.05 from the prior quarter.
Orders
for the first quarter were $3.32 billion. This was an increase of
$111 million from the year-ago quarter and a decline of $164 million from the
prior quarter.
Semiconductor
Semiconductor
revenue in the first quarter of 2008 was $3.19 billion. This was 2
percent higher than the year-ago quarter primarily due to higher shipments
resulting from increased demand for analog products, especially high-performance
analog products. Revenue declined 8 percent from the prior quarter
primarily due to lower shipments resulting from decreased demand for DSP
products sold into cell phone applications.
In July
2007, we sold our digital subscriber line (DSL) customer-premises equipment
product line, causing a decline in revenue of about $55 million from first
quarter 2007 as compared to first quarter 2008. This sale primarily
affected our application-specific analog revenue over this period, although
there was also some DSP revenue impact.
Analog
product revenue for the first quarter was $1.32 billion. This was up
6 percent compared with a year ago due to increased shipments resulting from
stronger demand for high-performance analog products. Revenue was
down 4 percent from the prior quarter primarily due to lower shipments resulting
from weaker demand for application-specific analog products sold into hard-disk
drive and cell phone applications. Revenue from high-performance
analog products increased 20 percent from a year ago and was about even with the
prior quarter.
DSP
product revenue for the first quarter was $1.12 billion. This was a
decrease of 3 percent from a year ago and 18 percent from the prior
quarter. Revenue declined from the year-ago quarter because products
for low-end cell phones represented a higher proportion of our shipments than in
the earlier period. Revenue declined from the prior quarter due to
lower shipments resulting from reduced demand for products sold into a broad
range of cell phone applications.
Our
remaining semiconductor revenue for the first quarter was $754 million, an
increase of 6 percent from a year ago and 2 percent from the prior
quarter. Growth in both comparisons was primarily due to increased
shipments resulting from higher demand for microcontrollers. Also
included in remaining semiconductor revenue is royalty revenue and revenue from
sales of reduced-instruction set microprocessors, standard logic products and
DLP® products.
On an
end-equipment basis, revenue from products for wireless applications was
$1.09 billion, a decline of 4 percent from the year-ago quarter primarily due to
lower revenue from digital baseband and chipset products. Revenue
from baseband and chipset products declined despite an increase in shipments
because products for low-end cell phones represented a higher
proportion
of shipments than in the earlier period. Compared with prior quarter,
revenue declined 18 percent due to lower shipments resulting from decreased
demand. Most of the decline in demand was due to an unexpected
in-quarter decrease in demand for high-end, or 3G, products, although the
previously discussed supplier transition under way at Ericsson Mobile Platforms
contributed to a lesser extent.
Gross
profit for the first quarter was $1.73 billion, or 54.3 percent of
revenue. This was up $102 million, or 6 percent, from the year-ago
quarter primarily due to higher revenue from more-profitable analog products,
and to a lesser extent, from microcontrollers. Gross profit was down
$165 million, or 9 percent, from the prior quarter due to lower
revenue.
Operating
profit for the first quarter was $927 million, or 29.0 percent of
revenue. This was an increase of $96 million from the year-ago
quarter due to higher gross profit. Operating profit decreased $190
million from the prior quarter primarily due to lower gross profit.
Semiconductor
orders in the first quarter were $3.17 billion. This was up 3 percent
from the year-ago quarter due to higher demand for analog products and was down
7 percent from the prior quarter primarily due to lower demand for DSP products
used in cell phones.
Education
Technology
Education
technology revenue for the first quarter of 2008 was $81
million. This was an increase of $5 million, or 7 percent, from the
year-ago quarter due to higher sales of graphing calculators. Revenue
was even with the prior quarter.
Gross
profit for the first quarter was $49 million, or 60.5 percent of
revenue. This was an increase of $4 million, or 10 percent, from the
year-ago quarter due to higher revenue. Gross profit declined $1
million from the prior quarter.
Operating
profit for the first quarter was $18 million, or 21.9 percent of
revenue. This was an increase of $2 million from the year-ago quarter
due to higher gross profit and a decrease of $1 million from the prior quarter
due to lower gross profit.
Financial
Condition
At the
end of the first quarter of 2008, total cash (cash and cash equivalents plus
short-term investments) was $1.88 billion. This was $1.05 billion
lower than the end of 2007. As of the end of the first
quarter we reclassified our remaining auction-rate securities, which have a fair
value of $551 million, from short-term investments to long-term investments due
to reduced liquidity for these securities (see Notes 4 and 5 to the Financial
Statements). Accounts receivable were $1.67 billion at the end of the
quarter. This was a decrease of $73 million from the end of
2007. Days sales outstanding were 46 at the end of the quarter
compared with 44 at the end of 2007.
Inventory
was $1.58 billion at the end of the quarter. This was $160 million
higher than the end of 2007. Days of inventory at the end of the
first quarter were 94, up 16 days from the prior quarter. About
one-third of the increase in inventory was the result of unexpected decreases in
demand from our wireless customers in the quarter. Another third of
the increase is tied to our changing perspective for demand in the second
quarter. When we started manufacturing those products we had higher
expectations for second quarter demand than our more conservative current
view. In response, we began to lower production levels in early March
to reduce our inventory at a measured pace over the next few
quarters. The final third of the increased inventory was the result
of a planned build, especially in high-performance analog. It was our
objective to increase this inventory level to enable us to better
service our customers and we plan to maintain this higher level.
Capital
spending in the first quarter totaled $219 million. This was an
increase of $40 million from a year ago due to higher expenditures for
semiconductor assembly/test equipment and facilities. Depreciation in
the first three months of 2008 was $241 million, down $11 million from a year
ago.
Liquidity and Capital
Resources
Cash flow
from operations for the first quarter of 2008 was $641 million, an increase of
$87 million from the year-ago quarter, due to the increase in net
income.
For the
first quarter of 2008, net cash provided from investing activities was $391
million, compared with cash used of $44 million a year ago. During
the quarter, we reduced our holdings of short-term investments to
supplement cash flow from operations for share repurchases. We
used $874 million of cash in the quarter to repurchase 28.6 million shares of
our common stock and paid dividends of $133 million. In the same
quarter last year we used $857 million of cash to repurchase
28
million shares of common stock and paid $58 million in dividends. Dividends
were higher due to the increase in the quarterly dividend rate in the second and
fourth quarters of 2007. The amount of dividend payments was
partially offset by the lower number of shares outstanding as a result of the
share repurchases.
In 2008,
we expect: an annual effective tax rate of about 31 percent, R&D expense of
$2.0 billion, capital expenditures of $0.9 billion and depreciation of $1.0
billion.
We
believe we have the necessary financial resources to fund our working capital
needs, capital expenditures, authorized stock repurchases, dividend payments and
other business requirements for at least the next 12 months.
Changes in Accounting
Standards
See Note
1 to the Financial Statements for detailed information regarding the status of
new accounting standards that are not yet effective for us.
ITEM 3. Quantitative and Qualitative
Disclosures About Market Risk.
Information
concerning market risk is contained on pages 58-59 of Exhibit 13 to our Form
10-K for the year ended December 31, 2007, and is incorporated by reference to
such exhibit.
ITEM 4. Controls and
Procedures.
An
evaluation as of the end of the period covered by this report was carried out
under the supervision and with the participation of management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that those disclosure controls and procedures
were effective in providing reasonable assurance that information required to be
disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms. In addition, there has been no
change in our internal control over financial reporting (as defined in Rule
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred
during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II – OTHER
INFORMATION
ITEM 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
The
following table contains information regarding our purchases of our common stock
during the quarter.
ISSUER PURCHASES OF EQUITY
SECURITIES
|
|
Total
Number of
Shares
Purchased
|
|
|
Average
Price Paid
per
Share
|
|
|
Total Number
of Shares
Purchased
as
Part of
Publicly
Announced
Plans or
Programs(1)
|
|
|
|
Approximate
Dollar Value
of
Shares
that
May Yet Be
Purchased
Under the
Plans or
Programs(1)
|
|
January
1 through January 31, 2008
|
|
|
21,995,000
|
|
|
$ |
30.17
|
|
|
|
21,995,000
|
|
|
$ |
4,910
million
|
|
February
1 through February 29, 2008
|
|
|
3,638,400
|
|
|
$ |
30.24
|
|
|
|
3,638,400
|
|
|
$ |
4,800
million
|
|
March
1 through March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Total
|
|
|
25,633,400
|
|
|
$ |
30.18
|
|
|
|
25,633,400 |
(2) |
|
$ |
4,800
million
|
(2) |
(1)
|
All
purchases during the quarter were made through open market purchases under
one of the following two authorizations from our Board of Directors: (a)
authorization to purchase up to $5 billion of additional shares of TI
common stock (announced on September 21, 2006) and (b) authorization to
purchase up to $5 billion of additional shares of TI common stock
(announced on September 21, 2007). No expiration date has been
specified for these authorizations.
|
(2)
|
The
table does not include the purchase of 3,000,000 shares pursuant to orders
placed in the fourth quarter of 2007, for which trades were settled in the
first three business days of the first quarter for $101
million. The purchase of these shares was reflected in Part II,
Item 5 of our report on Form 10-K for the year ended December 31,
2007.
|
Designation of Exhibits in This
Report
|
|
31.1
|
Certification
of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-15(e)
or Rule 15d-15(e).
|
|
|
31.2
|
Certification
of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-15(e)
or Rule 15d-15(e).
|
|
|
32.1
|
Certification
by Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
|
|
|
32.2
|
Certification
by Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C.
Section 1350.
|
“Safe
Harbor” Statement under the Private Securities Litigation Reform Act of
1995:
This
report 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 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 our
forecasts;
|
· |
The
financial impact of inadequate or excess TI inventory that results from
demand that differs from
projections;
|
· |
TI's
ability to access its bank accounts and lines of credit or otherwise
access the capital markets;
|
· |
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 our most recent Form 10-K. The forward-looking statements
included in this quarterly report on Form 10-Q are made only as of the date of
this report, and we undertake no obligation to update the forward-looking
statements to reflect subsequent events or circumstances.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
TEXAS
INSTRUMENTS INCORPORATED
|
|
|
|
|
|
By:
|
|
/s/
Kevin P. March
|
|
|
|
|
Kevin
P. March
|
|
|
|
|
Senior
Vice President
|
|
|
|
|
and
Chief Financial Officer
|
Date:
April 30, 2008