d10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
S
|
QUARTERLY REPORT UNDER SECTION
13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
o
|
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes S No o
Yes S No
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 No S
1,252,873,398
Number of
shares of Registrant’s common stock outstanding as of
September
30, 2009
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 Sept. 30,
|
|
|
For
Nine Months Ended Sept.
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,880 |
|
|
$ |
3,387 |
|
|
$ |
7,422 |
|
|
$ |
10,010 |
|
Cost
of revenue (COR)
|
|
|
1,399 |
|
|
|
1,744 |
|
|
|
4,012 |
|
|
|
4,862 |
|
Gross
profit
|
|
|
1,481 |
|
|
|
1,643 |
|
|
|
3,410 |
|
|
|
5,148 |
|
Research
and development (R&D)
|
|
|
368 |
|
|
|
507 |
|
|
|
1,122 |
|
|
|
1,509 |
|
Selling,
general and administrative (SG&A)
|
|
|
340 |
|
|
|
390 |
|
|
|
972 |
|
|
|
1,252 |
|
Restructuring
expense
|
|
|
10 |
|
|
|
-- |
|
|
|
200 |
|
|
|
-- |
|
Operating
profit
|
|
|
763 |
|
|
|
746 |
|
|
|
1,116 |
|
|
|
2,387 |
|
Other
income (expense) net
|
|
|
2 |
|
|
|
10 |
|
|
|
20 |
|
|
|
58 |
|
Income
before income taxes
|
|
|
765 |
|
|
|
756 |
|
|
|
1,136 |
|
|
|
2,445 |
|
Provision
for income taxes
|
|
|
227 |
|
|
|
193 |
|
|
|
321 |
|
|
|
632 |
|
Net
income
|
|
$ |
538 |
|
|
$ |
563 |
|
|
$ |
815 |
|
|
$ |
1,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.42 |
|
|
$ |
.43 |
|
|
$ |
.64 |
|
|
$ |
1.37 |
|
Diluted
|
|
$ |
.42 |
|
|
$ |
.43 |
|
|
$ |
.63 |
|
|
$ |
1.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,255 |
|
|
|
1,304 |
|
|
|
1,266 |
|
|
|
1,317 |
|
Diluted
|
|
|
1,268 |
|
|
|
1,315 |
|
|
|
1,272 |
|
|
|
1,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per share of common stock
|
|
$ |
.11 |
|
|
$ |
.10 |
|
|
$ |
.33 |
|
|
$ |
.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
TEXAS
INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Income
(Millions
of dollars)
|
|
For
Three Months Ended Sept. 30,
|
|
|
For
Nine Months Ended Sept.
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
538 |
|
|
$ |
563 |
|
|
$ |
815 |
|
|
$ |
1,813 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment,
net of
taxes
|
|
|
(2 |
) |
|
|
(19 |
) |
|
|
17 |
|
|
|
(28 |
) |
Recognized
in net income, net of taxes
|
|
|
5 |
|
|
|
-- |
|
|
|
6 |
|
|
|
(3 |
) |
Changes
in unrecognized net actuarial loss of defined benefit
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment,
net of
taxes
|
|
|
(22 |
) |
|
|
2 |
|
|
|
58 |
|
|
|
(8 |
) |
Recognized
in net income, net of taxes
|
|
|
14 |
|
|
|
5 |
|
|
|
39 |
|
|
|
17 |
|
Changes
in unrecognized prior service cost of defined benefit
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment,
net of
taxes
|
|
|
1 |
|
|
|
1 |
|
|
|
(2 |
) |
|
|
4 |
|
Recognized
in net income, net of taxes
|
|
|
-- |
|
|
|
-- |
|
|
|
(6 |
) |
|
|
-- |
|
Total
|
|
|
(4 |
) |
|
|
(11 |
) |
|
|
112 |
|
|
|
(18 |
) |
Total
comprehensive income
|
|
$ |
534 |
|
|
$ |
552 |
|
|
$ |
927 |
|
|
$ |
1,795 |
|
See
accompanying notes.
TEXAS
INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated
Balance Sheets
(Millions of
dollars, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$ |
1,294 |
|
|
$ |
1,046 |
|
Short-term
investments
|
|
|
1,533 |
|
|
|
1,494 |
|
Accounts receivable, net of
allowances of ($22) and ($30)
|
|
|
1,435 |
|
|
|
913 |
|
Raw materials
|
|
|
89 |
|
|
|
99 |
|
Work in process
|
|
|
767 |
|
|
|
837 |
|
Finished goods
|
|
|
260 |
|
|
|
439 |
|
Inventories
|
|
|
1,116 |
|
|
|
1,375 |
|
Deferred income
taxes
|
|
|
592 |
|
|
|
695 |
|
Prepaid expenses and other
current assets
|
|
|
168 |
|
|
|
267 |
|
Total current
assets
|
|
|
6,138 |
|
|
|
5,790 |
|
Property,
plant and equipment at cost
|
|
|
6,599 |
|
|
|
7,321 |
|
Less
accumulated depreciation
|
|
|
(3,654 |
) |
|
|
(4,017 |
) |
Property,
plant and equipment, net
|
|
|
2,945 |
|
|
|
3,304 |
|
Long-term investments
|
|
|
627 |
|
|
|
653 |
|
Goodwill
|
|
|
926 |
|
|
|
840 |
|
Acquisition-related
intangibles
|
|
|
138 |
|
|
|
91 |
|
Deferred
income taxes
|
|
|
928 |
|
|
|
990 |
|
Capitalized
software licenses, net
|
|
|
124 |
|
|
|
182 |
|
Overfunded
retirement plans
|
|
|
20 |
|
|
|
17 |
|
Other
assets
|
|
|
57 |
|
|
|
56 |
|
Total
assets
|
|
$ |
11,903 |
|
|
$ |
11,923 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
467 |
|
|
$ |
324 |
|
Accrued expenses and other
liabilities
|
|
|
959 |
|
|
|
1,034 |
|
Income taxes
payable
|
|
|
148 |
|
|
|
40 |
|
Accrued profit sharing and
retirement
|
|
|
88 |
|
|
|
134 |
|
Total current
liabilities
|
|
|
1,662 |
|
|
|
1,532 |
|
Underfunded
retirement plans
|
|
|
464 |
|
|
|
640 |
|
Deferred
income taxes
|
|
|
60 |
|
|
|
59 |
|
Deferred
credits and other liabilities
|
|
|
279 |
|
|
|
366 |
|
Total
liabilities
|
|
|
2,465 |
|
|
|
2,597 |
|
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: September 30, 2009 – 1,739,770,537; December 31, 2008 –
1,739,718,073
|
|
|
1,740 |
|
|
|
1,740 |
|
Paid-in
capital
|
|
|
1,071 |
|
|
|
1,022 |
|
Retained
earnings
|
|
|
21,562 |
|
|
|
21,168 |
|
Less
treasury common stock at cost:
Shares: September
30, 2009 – 486,897,139; December 31, 2008 – 461,822,215
|
|
|
(14,257 |
) |
|
|
(13,814 |
) |
Accumulated
other comprehensive income (loss), net of taxes
|
|
|
(678 |
) |
|
|
(790 |
) |
Total
stockholders’ equity
|
|
|
9,438 |
|
|
|
9,326 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
11,903 |
|
|
$ |
11,923 |
|
See
accompanying notes.
TEXAS
INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Millions of
dollars)
|
|
For
Nine Months Ended Sept.
30,
|
|
|
|
|
|
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
815 |
|
|
$ |
1,813 |
|
Adjustments
to net income:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
668 |
|
|
|
738 |
|
Stock-based
compensation
|
|
|
143 |
|
|
|
162 |
|
Amortization
of acquisition-related intangibles
|
|
|
34 |
|
|
|
28 |
|
Deferred
income taxes
|
|
|
80 |
|
|
|
(159 |
) |
Increase
(decrease) from changes in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(520 |
) |
|
|
(24 |
) |
Inventories
|
|
|
263 |
|
|
|
(157 |
) |
Prepaid
expenses and other current assets
|
|
|
24 |
|
|
|
(25 |
) |
Accounts
payable and accrued expenses
|
|
|
36 |
|
|
|
(171 |
) |
Income
taxes payable
|
|
|
91 |
|
|
|
25 |
|
Accrued
profit sharing and retirement
|
|
|
(43 |
) |
|
|
(74 |
) |
Other
|
|
|
51 |
|
|
|
60 |
|
Net
cash provided by operating activities
|
|
|
1,642 |
|
|
|
2,216 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(317 |
) |
|
|
(686 |
) |
Purchases
of short-term investments
|
|
|
(1,442 |
) |
|
|
(362 |
) |
Sales
and maturities of short-term investments
|
|
|
1,412 |
|
|
|
1,118 |
|
Purchases
of long-term investments
|
|
|
(5 |
) |
|
|
(8 |
) |
Redemptions
and sales of long-term investments
|
|
|
62 |
|
|
|
48 |
|
Acquisitions,
net of cash acquired
|
|
|
(155 |
) |
|
|
(19 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(445 |
) |
|
|
91 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Dividends
paid
|
|
|
(418 |
) |
|
|
(396 |
) |
Sales
and other common stock transactions
|
|
|
71 |
|
|
|
195 |
|
Excess
tax benefit from share-based payments
|
|
|
-- |
|
|
|
17 |
|
Stock
repurchases
|
|
|
(602 |
) |
|
|
(1,736 |
) |
Net
cash used in financing activities
|
|
|
(949 |
) |
|
|
(1,920 |
) |
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
248 |
|
|
|
387 |
|
Cash
and cash equivalents, beginning of period
|
|
|
1,046 |
|
|
|
1,328 |
|
Cash
and cash equivalents, end of period
|
|
$ |
1,294 |
|
|
$ |
1,715 |
|
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; about 80,000
customers all over the world buy our
products.
|
Basis of Presentation - The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the U.S. (US GAAP) and except for
new accounting standards on business combinations, fair value measurements and
earnings per share, on the same basis as the audited financial statements
included in our annual report on Form 10-K for the year ended December 31,
2008. The
consolidated statements of income, statements of comprehensive income and
statements of cash flows for the periods ended September 30, 2009 and 2008, and
the balance sheet as of September 30, 2009, 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, 2008, 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, 2008. The results for the
nine-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.
Acquisitions – In the second
quarter of 2009, we expanded our microcontroller portfolio by acquiring Luminary
Micro for net cash of $51 million and other consideration of $7 million.
We recognized $15 million of goodwill, which is not expected to be deductible
for tax purposes, $41 million of intangible assets, and $2 million of other net
assets and liabilities. The former Luminary Micro operations were
integrated into our Embedded Processing segment.
In the
first quarter of 2009, we acquired CICLON Semiconductor Device Corporation
(CICLON), a designer of high-frequency, high-efficiency power management
semiconductors for net cash of $104 million and other consideration of $7
million. This acquisition expands our ability to help customers
improve energy efficiency in end-equipment designs, such as high-power computing
and server systems. We recognized $70 million of goodwill, which is
not expected to be deductible for tax purposes, $40 million of intangible
assets, and $1 million of other net assets and liabilities. The
former CICLON operations were integrated into our Analog
segment.
The
results of operations of these acquisitions have been included in our financial
statements from their respective acquisition dates and were not significant for
either the three or nine month periods of 2009. Pro forma information
for the comparable periods of 2008 to reflect these acquisitions would not be
materially different from amounts reported.
Use of Derivatives and Hedging -
We use derivative financial instruments to manage exposure to foreign
exchange risk. We do not apply hedge accounting to our foreign
currency derivative instruments. These instruments are primarily
forward foreign currency exchange contracts that are used as economic hedges to
reduce the earnings impact exchange rate fluctuations may have on our non-U.S.
dollar net balance sheet exposures or for specified non-U.S. dollar forecasted
transactions. Gains and losses from changes in the fair value of
these forward foreign currency exchange contracts are credited or charged to
other income (expense) net (OI&E). We do not use derivative
financial instruments for speculative or trading purposes.
Fair Values of Financial Instruments
– The fair values of our derivative financial instruments were not
significant at September 30, 2009. Our investments in cash
equivalents, short-term investments and certain long-term investments are
carried at fair value and are disclosed in Note 5. The carrying
values for other current financial assets and liabilities, such as accounts
receivable and accounts payable, approximate fair value due to the short
maturity of such instruments.
Changes in Accounting Standards –
In June 2009, the Financial Accounting Standards Board (FASB) Accounting
Standards Codification™ (Codification) became the single source of authoritative
US GAAP. The Codification did not create any new GAAP standards but
incorporated existing accounting and reporting standards into a new topical
structure with a new referencing system to identify authoritative accounting
standards, replacing the prior references to Statement of Financial Accounting
Standards (SFAS), Emerging Issues Task Force (EITF), FASB Staff Position (FSP),
etc. Authoritative standards included in the Codification are
designated by their Accounting
Standards Codification (ASC) topical reference, and new standards will be
designated as Accounting
Standards Updates (ASU), with a year and assigned sequence
number. Beginning with this interim report for the third quarter of
2009, references to prior standards have been updated to reflect the new
referencing system.
In June
2009, the FASB concurrently issued amendments to ASC 860, Transfers and Servicing
(formerly SFAS No. 166), and ASC 810, Consolidation (formerly SFAS
No. 167), that change
the way entities account for securitizations and other transfers of financial
instruments. In addition to increased disclosure, these amendments
eliminate the concept of qualifying special purpose entities and change the test
for consolidation of variable interest entities. These amendments will be
effective for us as of January 1, 2010. We have evaluated these amendments
and believe they will have no impact on our financial condition or results of
operations.
In
October 2009, the FASB concurrently issued the following Accounting Standards
Updates:
-
ASU No.
2009-14 - Software (Topic
985): Certain Revenue Arrangements That Include Software Elements
(formerly EITF Issue No. 09-3). This standard removes
tangible products from the scope of software revenue recognition guidance and
also provides guidance on determining whether software deliverables in an
arrangement that includes a tangible product, such as embedded software, are
within the scope of the software revenue guidance.
-
ASU No.
2009-13 - Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements
(formerly EITF Issue No. 08-1). This standard modifies the revenue
recognition guidance for arrangements that involve the delivery of multiple
elements, such as product, software, services or support, to a customer at
different times as part of a single revenue generating
transaction. This standard provides principles and application
guidance to determine whether multiple deliverables exist, how the individual
deliverables should be separated and how to allocate the revenue in the
arrangement among those separate deliverables. The standard also expands the
disclosure requirements for multiple deliverable revenue
arrangements.
These
Accounting Standards Updates should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application
permitted. Alternatively, an entity can elect to adopt these
standards on a retrospective basis, but both these standards must be adopted in
the same period using the same transition method. We expect to apply
this standard on a prospective basis for revenue arrangements entered into or
materially modified beginning January 1, 2011. We are currently
evaluating the potential impact these standards may have on our financial
position and results of operations.
2.
|
Restructuring
activities. In October 2008, we announced actions to
reduce annualized expenses by more than $200 million in our Wireless
segment, especially our baseband operation. Additionally, in
January 2009, we announced actions that included employment reductions to
align our spending with weakened demand. Combined, these
actions have eliminated about 3,900 jobs and will reduce our annualized
costs by more than $700 million. The total restructuring
charges for these actions are expected to be about $450 million and will
continue through the fourth quarter of
2009.
|
The table
below reflects the changes in accrued restructuring balances:
|
|
Severance and Benefits
|
|
|
Impairments and Other
Charges
|
|
|
Total
|
|
Restructuring
charges recognized in the quarter ending December 31, 2008
|
|
$ |
218 |
|
|
$ |
12 |
|
|
$ |
230 |
|
Non-cash
charges
|
|
|
(30 |
)* |
|
|
(7 |
) |
|
|
(37 |
) |
Payments
|
|
|
(2 |
) |
|
|
-- |
|
|
|
(2 |
) |
Remaining
accrual at December 31, 2008
|
|
$ |
186 |
|
|
$ |
5 |
|
|
$ |
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges recognized in the quarter ending March 31, 2009
|
|
|
98 |
|
|
|
7 |
|
|
|
105 |
|
Non-cash
charges
|
|
|
(8 |
)* |
|
|
-- |
|
|
|
(8 |
) |
Payments
|
|
|
(62 |
) |
|
|
-- |
|
|
|
(62 |
) |
Remaining
accrual at March 31, 2009
|
|
$ |
214 |
|
|
$ |
12 |
|
|
$ |
226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges recognized in the quarter ending June 30, 2009
|
|
|
79 |
|
|
|
6 |
|
|
|
85 |
|
Non-cash
credits
|
|
|
4 |
* |
|
|
2 |
|
|
|
6 |
|
Payments
|
|
|
(89 |
) |
|
|
(3 |
) |
|
|
(92 |
) |
Remaining
accrual at June 30, 2009 |
|
$ |
208 |
|
|
$ |
17 |
|
|
$ |
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges recognized in the quarter ending September 30,
2009
|
|
|
9 |
|
|
|
1 |
|
|
|
10 |
|
Non-cash charges
|
|
|
(7 |
)* |
|
|
(1 |
) |
|
|
(8 |
) |
Payments
|
|
|
(76 |
) |
|
|
(2 |
) |
|
|
(78 |
) |
Remaining
accrual at September 30, 2009
|
|
$ |
134 |
|
|
$ |
15 |
|
|
$ |
149 |
|
*
Reflects charges and credits for post-employment benefit plan settlement,
curtailment and special termination benefits.
Restructuring
charges recognized by segment in the periods of 2009 are as
follows:
|
|
For
Three Months Ended September 30, 2009
|
|
|
For
Nine Months Ended September 30, 2009
|
|
Analog
|
|
$ |
4 |
|
|
$ |
81 |
|
Embedded
Processing
|
|
|
2 |
|
|
|
40 |
|
Wireless
|
|
|
3 |
|
|
|
58 |
|
Other
|
|
|
1 |
|
|
|
21 |
|
Total
restructuring
charges
|
|
$ |
10 |
|
|
$ |
200 |
|
3.
|
Income
taxes. Federal income taxes have been included in the
accompanying financial statements on the basis of an estimated annual
effective tax rate. As of September 30, 2009, the estimated annual
effective tax rate for 2009 is about 28 percent, which differs from the 35
percent statutory corporate tax rate primarily due to the effects of
non-U.S. tax rates. Included in the tax provision for the first nine
months of 2009 were $9 million in discrete tax charges, with $14 million
recognized in the third quarter. The discrete charges relate primarily to
adjustments identified through the completion of tax returns for prior
years. The tax provision in the year-ago quarter included discrete tax
benefits of $34 million, which were primarily due to adjustments
identified through the completion of tax returns for prior years. For the
first nine months of 2008 there were discrete tax benefits of $113
million, which were primarily due to our decision to indefinitely reinvest
the accumulated earnings of a non-U.S.
subsidiary.
|
4.
|
Earnings per share
(EPS). In 2008, the FASB issued an update to ASC 260,
Earnings per
Share (formerly FSP EITF 03-6-1), that became effective for us
beginning January 1, 2009. Under this update, unvested awards
of share-based payments with rights to receive dividends or dividend
equivalents, such as our restricted stock units (RSUs), are considered to
be participating securities and the two-class method should be used for
purposes of calculating EPS. Under the two-class method, a
portion of net income is allocated to these participating securities and
therefore is excluded from the calculation of EPS allocated to common
stock, as shown in the table below. This update requires
retrospective application for periods prior to the effective date and as a
result, all prior period earnings per share data presented herein have
been adjusted to conform to these provisions. The adoption of this
update resulted in no change to the previously reported basic or diluted
EPS for the three months ended September 30, 2008 and a decrease of $.01
per share to the previously reported basic and diluted EPS for the nine
months ended September 30, 2008.
|
Computation
and reconciliation of earnings per common share are as follows:
|
|
For
Three Months Ended
|
|
|
For
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
538 |
|
|
|
|
|
|
|
|
$ |
563 |
|
|
|
|
|
|
|
Less
income allocated to RSUs
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
Net
Income allocated to common stock for EPS
calculation
|
|
$ |
532 |
|
|
|
1,255 |
|
|
$ |
0.42 |
|
|
$ |
559 |
|
|
|
1,304 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
for dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
plans
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
538 |
|
|
|
|
|
|
|
|
|
|
$ |
563 |
|
|
|
|
|
|
|
|
|
Less
income allocated to RSUs
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
Net
Income allocated to common stock for
EPS calculation
|
|
$ |
532 |
|
|
|
1,268 |
|
|
$ |
0.42 |
|
|
$ |
559 |
|
|
|
1,315 |
|
|
$ |
0.43 |
|
|
|
For
Nine Months Ended
|
|
|
For
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
815 |
|
|
|
|
|
|
|
|
$ |
1,813 |
|
|
|
|
|
|
|
Less
income allocated to RSUs
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
Net
Income allocated to common stock for EPS
calculation
|
|
$ |
807 |
|
|
|
1,266 |
|
|
$ |
0.64 |
|
|
$ |
1,802 |
|
|
|
1,317 |
|
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
for dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
plans
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
815 |
|
|
|
|
|
|
|
|
|
|
$ |
1,813 |
|
|
|
|
|
|
|
|
|
Less
income allocated to RSUs
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
Net
Income allocated to common stock for EPS calculation
|
|
$ |
807 |
|
|
|
1,272 |
|
|
$ |
0.63 |
|
|
$ |
1,802 |
|
|
|
1,333 |
|
|
$ |
1.35 |
|
Options
to purchase 121 million and 138 million shares of common stock that were
outstanding during the third quarters of 2009 and 2008, and 137 million and 97
million shares outstanding during the nine months of 2009 and 2008, were not
included in the computation of diluted earnings per share because their exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be anti-dilutive.
5.
|
Valuation of debt and
equity investments and certain liabilities. We present
investments on our balance sheets as cash equivalents, short-term
investments or long-term investments. This presentation
reflects both the liquidity and intended use of the
investments.
|
Debt and equity
investments
Our
accounting policy is to classify our investments as available-for-sale, trading,
equity method or cost method. Most of our investments are classified
as available-for-sale.
Available-for-sale
securities consist primarily of money market funds and debt
securities. Available-for-sale securities are stated at fair value,
which is generally based on market prices, broker quotes or, when necessary,
financial models (see fair value discussion below). We record
other-than-temporary losses (impairments) on these securities in OI&E in our
statement of income, and all other unrealized gains and losses as an increase or
decrease, net of taxes, in accumulated other comprehensive income (AOCI) on our
balance sheet.
Trading
securities are stated at fair value based on market prices. Our
trading securities consist exclusively of mutual funds that hold a variety of
debt and equity investments that are intended to generate returns that offset
changes in certain deferred compensation liabilities. We record
changes in the fair value of our trading securities and the related deferred
compensation liabilities in selling, general and administrative (SG&A)
expense in our statement of income.
Our other
investments are not measured at fair value but are accounted for using either
the equity method or cost method of accounting. These investments
consist of interests in venture capital funds and non-marketable equity
securities. Gains or losses on equity method investments are
reflected in OI&E based on our ownership share of the investee’s financial
results. Gains and losses on cost method investments are recorded in
OI&E when realized or when an impairment of the investment’s value is
warranted based on our assessment of the recoverability of each
investment.
We determine
cost or amortized cost, as appropriate, on a specific identification
basis.
Details of
our investments and related unrealized gains and losses included in AOCI are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$ |
953 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
796 |
|
|
$ |
-- |
|
|
$ |
-- |
|
Corporate obligations
|
|
|
-- |
|
|
|
441 |
|
|
|
-- |
|
|
|
50 |
|
|
|
590 |
|
|
|
-- |
|
U.S. government agency and
Treasury securities
|
|
|
140 |
|
|
|
1,092 |
|
|
|
-- |
|
|
|
-- |
|
|
|
654 |
|
|
|
-- |
|
Mortgage-backed and other
securities
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
250 |
|
|
|
-- |
|
Auction-rate securities |
|
|
-- |
|
|
|
-- |
|
|
|
457 |
|
|
|
-- |
|
|
|
-- |
|
|
|
482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
-- |
|
|
|
-- |
|
|
|
115 |
|
|
|
-- |
|
|
|
-- |
|
|
|
96 |
|
Total
debt and equity investments measured at fair value
|
|
$ |
1,093 |
|
|
$ |
1,533 |
|
|
$ |
572 |
|
|
$ |
846 |
|
|
$ |
1,494 |
|
|
$ |
578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
measurement basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity method investments
|
|
|
-- |
|
|
|
-- |
|
|
|
33 |
|
|
|
-- |
|
|
|
-- |
|
|
|
53 |
|
Cost method investments
|
|
|
-- |
|
|
|
-- |
|
|
|
22 |
|
|
|
-- |
|
|
|
-- |
|
|
|
22 |
|
Cash on hand
|
|
|
201 |
|
|
|
-- |
|
|
|
-- |
|
|
|
200 |
|
|
|
-- |
|
|
|
-- |
|
Total
debt and equity investments
|
|
$ |
1,294 |
|
|
$ |
1,533 |
|
|
$ |
627 |
|
|
$ |
1,046 |
|
|
$ |
1,494 |
|
|
$ |
653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
included in AOCI from available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (pre-tax)
|
|
$ |
-- |
|
|
$ |
2 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
6 |
|
|
$ |
-- |
|
Unrealized
losses (pre-tax)
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
34 |
|
|
$ |
-- |
|
|
$ |
19 |
|
|
$ |
53 |
|
All of our investments in corporate obligations are
insured by either the Federal Deposit Insurance Corporation (FDIC) or the U.K.
government.
As of
September 30, 2009, unrealized losses included in AOCI were associated with
auction-rate securities. As of December 31, 2008, unrealized losses
included in AOCI were primarily associated with auction-rate securities and
mortgage-backed securities. The change in unrealized losses from
December 31, 2008, was primarily due to increases in fair values of the
investments held as well as the effects of redemptions and sales since that
date.
As of
September 30, 2009, we have determined that our investments classified as
available-for-sale with unrealized losses are not other-than-temporarily
impaired. We expect to recover the entire cost basis of these
securities. We do not intend to sell these investments, nor do we
expect to be required to sell these investments. For the nine months
ended September 30, 2009, we did not recognize in earnings any credit losses
related to these investments.
For the
nine months ended September 30, 2009, the proceeds from sales of
available-for-sale securities were $837 million. Gross realized gains
and losses from the sales of these securities were not significant for any
periods presented.
The
following table presents the aggregate maturities of investments in debt
securities classified as available-for-sale at September 30, 2009:
|
|
|
|
One
year or less
|
|
$ |
2,050 |
|
One
to three years
|
|
|
576 |
|
Greater
than three years (auction-rate securities)
|
|
|
457 |
|
|
|
|
|
|
Fair
value
We measure
and report our financial assets and liabilities under the provisions of ASC 820,
Fair Value Measurement
(formerly SFAS No. 157). Effective January 1, 2009,
we adopted the provisions of ASC 820 for non-financial assets and
liabilities. The adoption of ASC 820 for non-financial assets and
liabilities did not have a significant impact on our financial condition or
results of operations.
ASC 820
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.
ASC 820
establishes a three-level hierarchy for disclosure to show the extent and level
of judgment used to estimate fair value measurements.
Level 1 –
Uses unadjusted quoted prices that are available in active markets for the
identical assets or liabilities as of the reporting date.
Level 2 –
Uses inputs other than Level 1 that 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.
Level 3 –
Uses inputs that are unobservable and are supported by little or no market
activity and reflect the use of significant management
judgment. These values are generally determined using pricing models
which utilize management estimates of market participant
assumptions.
Investments
in auction-rate securities are our only Level 3 assets. Auction-rate
securities are debt instruments with variable interest rates that historically
would periodically reset through an auction process. There is
currently no active market for auction-rate securities, so we use a discounted
cash flow (DCF) model to determine the estimated fair value of these investments
as of each quarter end. The assumptions used in preparing the DCF
model include 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
consider relevant factors including: the formula for each security that 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 and additional credit enhancements provided through other means;
and, publicly available pricing data for student loan asset-backed securities
that 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.
To date, we
have collected all interest on all of our auction-rate securities when due and
expect to continue to do so in the future. The principal associated
with failed auctions will not be accessible until successful auctions resume, a
buyer is found outside of the auction process, or issuers use a different form
of financing to replace these securities. Meanwhile, issuers continue
to repay principal over time from cash flows prior to final maturity, or make
final payments when they come due according to contractual maturities ranging
from 14 to 38 years. All of our auction-rate securities are backed by
pools of student loans substantially 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 September 30, 2009, all but
one of these securities were rated AAA/Aaa by the major credit rating agencies,
with the remaining security (with a par value of $25 million) rated
AAA/B3. While our ability to liquidate auction-rate investments is
likely to be limited for some period of time, we do not believe this will
materially impact our ability to fund our working capital needs, capital
expenditures, dividend payments or other business requirements.
The table
below sets forth, by level, our assets and liabilities that were accounted for
at fair value as of September 30, 2009. The table does not include
cash on hand and also does not include assets and liabilities that are measured
at historical cost or any basis other than fair value.
|
|
Fair
Value at
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
Level
|
|
|
Level
|
|
|
Level
|
|
|
|
|
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
Items
measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
funds
|
|
$ |
953 |
|
|
$ |
953 |
|
|
$ |
-- |
|
|
$ |
-- |
|
Corporate
obligations
|
|
|
441 |
|
|
|
-- |
|
|
|
441 |
|
|
|
-- |
|
U.S.
government agency and Treasury securities
|
|
|
1,232 |
|
|
|
666 |
|
|
|
566 |
|
|
|
-- |
|
Auction–rate
securities
|
|
|
457 |
|
|
|
-- |
|
|
|
-- |
|
|
|
457 |
|
Mutual
funds
|
|
|
115 |
|
|
|
115 |
|
|
|
-- |
|
|
|
-- |
|
Total assets measured at fair
value
|
|
$ |
3,198 |
|
|
$ |
1,734 |
|
|
$ |
1,007 |
|
|
$ |
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration
|
|
$ |
18 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
18 |
|
Deferred compensation
liabilities
|
|
|
147 |
|
|
|
147 |
|
|
|
-- |
|
|
|
-- |
|
Total
liabilities measured at fair value
|
|
$ |
165 |
|
|
$ |
147 |
|
|
$ |
-- |
|
|
$ |
18 |
|
The liabilities
above are a component of Accrued expenses and other liabilities or Deferred
credits and other liabilities on our balance sheets.
The
following table summarizes the change in the fair values for Level 3 assets and
liabilities for the three and nine months ending September
30, 2009.
|
|
Level
3
|
|
|
|
|
|
|
|
|
Changes
in fair value for the three months ending September 30
(pre-tax):
|
|
|
|
|
|
|
Beginning
Balance, June 30, 2009
|
|
$ |
463 |
|
|
$ |
18 |
|
Increase in unrealized losses -
included in AOCI
|
|
|
(4 |
) |
|
|
-- |
|
Redemptions at par
|
|
|
(2 |
) |
|
|
-- |
|
Ending Balance, September 30,
2009
|
|
$ |
457 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
Changes
in fair value for the nine months ending September 30
(pre-tax):
|
|
|
|
|
|
|
|
|
Beginning
Balance, December 31, 2008
|
|
$ |
482 |
|
|
$ |
-- |
|
New
contingent consideration
|
|
|
-- |
|
|
|
10 |
|
Change in fair value of
contingent consideration - included in operating profit
|
|
|
-- |
|
|
|
8 |
|
Reduction of unrealized losses -
included in AOCI
|
|
|
19 |
|
|
|
-- |
|
Redemptions at par
|
|
|
(44 |
) |
|
|
-- |
|
Ending Balance, September 30,
2009
|
|
$ |
457 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
6.
|
Post-employment
benefit plans. Components of net periodic employee
benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
three months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
9 |
|
|
$ |
11 |
|
Interest
cost
|
|
|
12 |
|
|
|
12 |
|
|
|
7 |
|
|
|
7 |
|
|
|
16 |
|
|
|
15 |
|
Expected
return on plan assets
|
|
|
(11 |
) |
|
|
(11 |
) |
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(18 |
) |
|
|
(21 |
) |
Amortization
of prior service cost
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(1 |
) |
Recognized
net actuarial loss
|
|
|
5 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
|
|
8 |
|
|
|
1 |
|
Net
periodic benefit cost
|
|
$ |
11 |
|
|
$ |
11 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
14 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
charges
|
|
|
1 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
6 |
|
|
|
-- |
|
Total,
including charges
|
|
$ |
12 |
|
|
$ |
11 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
20 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
nine months ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
15 |
|
|
$ |
18 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
28 |
|
|
$ |
33 |
|
Interest
cost
|
|
|
37 |
|
|
|
37 |
|
|
|
20 |
|
|
|
20 |
|
|
|
46 |
|
|
|
46 |
|
Expected
return on plan assets
|
|
|
(36 |
) |
|
|
(34 |
) |
|
|
(21 |
) |
|
|
(20 |
) |
|
|
(51 |
) |
|
|
(63 |
) |
Amortization
of prior service cost
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
(3 |
) |
|
|
(3 |
) |
Recognized
net actuarial loss
|
|
|
13 |
|
|
|
12 |
|
|
|
6 |
|
|
|
6 |
|
|
|
27 |
|
|
|
4 |
|
Net
periodic benefit cost
|
|
$ |
30 |
|
|
$ |
34 |
|
|
$ |
9 |
|
|
$ |
11 |
|
|
$ |
47 |
|
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
charges
|
|
|
8 |
|
|
|
3 |
|
|
|
-- |
|
|
|
-- |
|
|
|
6 |
|
|
|
-- |
|
Curtailment
charges (gains)
|
|
|
-- |
|
|
|
-- |
|
|
|
2 |
|
|
|
-- |
|
|
|
(10 |
) |
|
|
-- |
|
Special
termination benefit charges
|
|
|
6 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total,
including charges and (gains)
|
|
$ |
44 |
|
|
$ |
37 |
|
|
$ |
11 |
|
|
$ |
11 |
|
|
$ |
43 |
|
|
$ |
17 |
|
We have
made contributions of $102 million to our post-employment benefit plans in
2009.
7.
|
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, we cannot reasonably estimate or
accrue for any future liabilities that may
result.
|
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 that include negotiated warranty
remedies. Typically, under these agreements, our warranty for
semiconductor products includes: three years’ coverage; 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 exceed the
price of our products. From time to time, we also negotiate
contingent consideration payment arrangements associated with certain
acquisitions, which are recorded at fair value.
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 on 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 specified
litigation matters and certain 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.
|
|
For
Three Months Ended
September
30,
|
|
|
For
Nine Months Ended
September
30,
|
|
|
|
2009 |
|
|
|
2008 |
|
|
|
2009 |
|
|
|
2008 |
|
Segment
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog
|
|
$ |
1,184 |
|
|
$ |
1,289 |
|
|
$ |
2,981 |
|
|
$ |
3,841 |
|
Embedded
Processing
|
|
|
393 |
|
|
|
427 |
|
|
|
1,059 |
|
|
|
1,291 |
|
Wireless
|
|
|
675 |
|
|
|
915 |
|
|
|
1,827 |
|
|
|
2,737 |
|
Other
|
|
|
628 |
|
|
|
756 |
|
|
|
1,555 |
|
|
|
2,141 |
|
Total
revenue
|
|
$ |
2,880 |
|
|
$ |
3,387 |
|
|
$ |
7,422 |
|
|
$ |
10,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog
|
|
$ |
306 |
|
|
$ |
274 |
|
|
$ |
367 |
|
|
$ |
972 |
|
Embedded
Processing
|
|
|
75 |
|
|
|
73 |
|
|
|
105 |
|
|
|
270 |
|
Wireless
|
|
|
110 |
|
|
|
155 |
|
|
|
154 |
|
|
|
434 |
|
Other
|
|
|
272 |
|
|
|
244 |
|
|
|
490 |
|
|
|
711 |
|
Total
operating profit
|
|
$ |
763 |
|
|
$ |
746 |
|
|
$ |
1,116 |
|
|
$ |
2,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2
for restructuring charges impacting segment results for the three months and
nine months ended September 30, 2009. There were no restructuring
charges impacting segment results for the periods ended September 30,
2008.
9.
|
Subsequent
Events. We have evaluated subsequent events through the
issuance of these financial statements which occurred on October 30,
2009.
|
In October
2009, we purchased semiconductor manufacturing equipment from the bankruptcy
proceedings of a U.S. subsidiary of German chipmaker Qimonda AG for $172.5
million. The majority of this equipment will be used in our newly
opened manufacturing facility in Richardson, Texas. This facility
will be the world's first production facility to use 300-millimeter silicon
wafers to manufacture analog chips.
On October
15, 2009, we declared a $0.12 quarterly dividend on common stock payable
November 16, 2009, to shareholders of record on October 30, 2009, which
represents a nine percent increase from our prior rate.
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 in Item 1. All dollar amounts in the tables
in this discussion are stated in millions of U.S. dollars, except per-share
amounts.
Overview
At Texas
Instruments, we design and make semiconductors that we sell to electronics
designers and manufacturers all over the world. We began operations
in 1930 and are incorporated in Delaware. We are headquartered in
Dallas, Texas, and have design, manufacturing or sales operations in more than
30 countries. We have four segments: Analog, Embedded Processing,
Wireless and Other. We expect Analog and Embedded Processing to be
our primary growth engines in the years ahead, and we therefore focus our
resources on these segments.
We were
the world’s fourth largest semiconductor company in 2008 as measured by revenue,
according to an external source. Additionally, we sell calculators
and related products.
Product
information
Semiconductors
are electronic components that serve as the building blocks inside modern
electronic systems and equipment. Semiconductors come in two basic
forms: individual transistors and integrated circuits (generally known as
“chips”) that combine multiple transistors on a single piece of material to form
a complete electronic circuit. Our semiconductors are used to
accomplish many different things, such as converting and amplifying signals,
interfacing with other devices, managing and distributing power, processing
data, canceling noise and improving signal resolution. Our portfolio
includes products that are integral to almost all electronic
equipment.
We sell
two general categories of semiconductor products: custom and
standard. A custom product is designed for a specific customer for a
specific application, is sold only to that customer and is typically sold
directly to the customer. A standard product is designed for use by
many customers and/or many applications and is generally sold through both
distribution and direct channels. Standard products include both
proprietary and commodity products.
Additional
information regarding each segment’s products follows.
Analog
Analog
semiconductors change 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 other semiconductors,
such as digital signal processors (DSPs). Analog semiconductors are
also used to manage power distribution and consumption. Sales from
our Analog segment accounted for about 40 percent of our revenue in
2008. According to WSTS, an industry data-gathering organization, the
worldwide market for analog semiconductors was about $36 billion in
2008. Our Analog segment’s revenue in 2008 was $4.9 billion, or about
14 percent of this market, giving us the leading position. We believe
that we are well positioned to increase our share over time.
Our
Analog product lines are: high-performance analog, high-volume analog
& logic and power management.
High-performance
analog products: These include standard analog semiconductors, such
as amplifiers, data converters, low-power radio frequency devices and interface
semiconductors (our standard analog portfolio includes more than 15,000
products), that we market to many different customers (nearly 80,000) who use
them in a wide range of products across the industrial, communications,
computing and consumer markets. High-performance analog products
generally have long life cycles, often 10 to 20 years.
High-volume
analog & logic products: These include two product
types. The first, high-volume analog, includes products for specific
applications, including custom products for specific customers. The
life cycles of our high-volume analog products are generally shorter than those
of our high-performance analog products. End markets for high-volume
analog products include communications, automotive, computing and many consumer
electronics products. The second product type, standard linear and
logic, includes commodity products marketed to many different customers for many
different applications.
Power
management products: These include both standard and custom
semiconductors that help customers manage power in any type of electronic
system. We design and manufacture power management semiconductors for
both portable devices (battery-powered devices, such as handheld consumer
electronics, laptop computers and cordless power tools) and line-powered systems
(products that require an external electrical source, such as computers, digital
TVs, wireless base stations and high-voltage industrial equipment).
Embedded
Processing
Our
Embedded Processing products include our DSPs (other than DSPs specific to our
Wireless segment) and microcontrollers. DSPs perform mathematical
computations almost instantaneously to process or improve digital
data. Microcontrollers are designed to control a set of specific
tasks for electronic equipment. Sales of Embedded Processing products
accounted for about 15 percent of our revenue in 2008. The worldwide
market for embedded processors was about $17 billion in
2008. According to external sources, we have about 10 percent market
share in this fragmented market, and we believe we are well positioned to
increase our share over time.
An
important characteristic of Embedded Processing products is that our customers
often invest their own research and development (R&D) to write software that
operates on our products. This investment tends to increase the
length of our customer relationships because customers prefer to re-use software
from one product generation to the next. We make and sell standard,
or catalog, Embedded Processing products used in many different applications and
custom Embedded Processing products used in specific applications, such as
communications infrastructure equipment and automotive.
Wireless
Cell
phones require a modem or “baseband” to connect to the wireless carrier’s
network. Many of today’s advanced cell phones also require an
applications processor to run the phone’s software and services, and
semiconductors to enable connectivity to Bluetooth®
devices, WiFi networks or GPS location services. We design, make and
sell products to satisfy each of these requirements. Wireless
products are typically sold in high volumes and our Wireless portfolio includes
both standard products and custom products. Sales of Wireless
products accounted for about 25 percent of our revenue in 2008, and a
significant portion of our Wireless sales were to a single
customer.
As
wireless communications have proliferated, consumers have demanded capabilities
beyond voice. Smartphones (phones that contain email, media, games
and computing capability) represent one of the fastest growing wireless
markets. These phones tend to include many semiconductor
products. Major handset manufacturers are actively pursuing the
smartphone market and increasingly focusing their R&D on applications and
services. As a result, we believe customer demand for applications
processors will grow as handset manufacturers seek to differentiate their
products by providing software and a unique user experience. Our
OMAPTM
product line has a leading position in the applications processor market and is
used by most of the top handset manufacturers.
Our
Wireless segment has been shifting focus from baseband chips, a market with
shrinking competitive barriers and slowing growth rates, to applications
processors, a market we expect will grow faster than the baseband
market. Consistent with this shift in market focus, we are
concentrating our Wireless investments on our applications processors and
connectivity products and have discontinued further development of standard
baseband products. While we continue to sell custom baseband
products, we are also decreasing custom baseband investments and expect
substantially all of this revenue to cease by the end of 2012.
Other
Our Other
segment includes revenue from smaller semiconductor product lines and handheld
graphing and scientific calculators, and from royalties received for our
patented technology that we license to other electronics
companies. The semiconductor products in our Other segment include
DLP®
products (primarily used to create high-definition images for business and home
theater projectors, televisions and movie projectors), reduced-instruction set
computing (RISC) microprocessors (designed to provide very fast computing and
often implemented in servers) and custom semiconductors known as
application-specific integrated circuits (ASICs). This segment
accounted for about 20 percent of our revenue in 2008.
Inventory
While our
inventory practices differ by product, we generally maintain inventory levels
that are consistent with our expectations of customer demand.
For
custom semiconductor products, where the risk of obsolescence is higher, we
carry lower levels of inventory when possible. These products 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.
For
standard semiconductor 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 wafer form, giving us greater flexibility to meet final package and
test configurations.
As a
result of the following multi-year trends, in general we expect to carry
relatively higher levels of inventory (as measured in days of inventory) than in
past years: standard products have become a larger part of our
portfolio; we have increased consignment programs with our largest customers;
and our distributors now carry relatively less inventory on average than in the
past.
We manage
calculator inventory consistent with expected seasonality.
Manufacturing
Semiconductor
manufacturing begins with the wafer fabrication manufacturing process: a
sequence of photo-lithographic and chemical processing steps that fabricate a
number of semiconductor devices on a thin silicon wafer. Each device
on the wafer is tested and the wafer is cut into pieces called
chips. Each chip is assembled into a package that then may be
retested. The entire process typically requires between twelve and
eighteen weeks and takes place in highly specialized facilities.
We own
and operate semiconductor manufacturing sites in North America, Asia and
Europe. These facilities include high-volume wafer fabrication plants
and assembly/test sites. 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 cost is fixed. In general, these
fixed costs do not decline with reductions in customer demand or utilization of
capacity and can adversely affect our profit margins as a
result. Conversely, as product demand rises and factory utilization
increases, the fixed costs are spread over increased output, potentially
benefiting our profit margins.
Most of
our Analog semiconductors require a lower level of capital investment in
manufacturing and equipment than is needed for equivalent production levels of
our Embedded Processing and Wireless semiconductors, which are manufactured
using advanced logic wafer manufacturing equipment. While analog
chips benefit from unique, proprietary wafer manufacturing processes, these
processes can be applied using older, less expensive equipment. In
addition, these processes and equipment remain usable for much longer than the
manufacturing processes and equipment required for advanced logic wafer
manufacturing.
To
supplement our internal advanced logic wafer fabrication capacity, maximize our
responsiveness to customer demand and minimize our overall capital expenditures,
our wafer manufacturing strategy utilizes the capacity of outside suppliers,
commonly known as foundries. Our strategy involves installing
internal wafer fabrication capacity to a level we believe will remain fully
utilized over the equipment’s useful lifetime and then outsourcing remaining
capacity needs to foundries. In 2008, external foundries provided
about 50 percent of the fabricated wafers for our advanced logic manufacturing
needs. We expect the proportion of our advanced logic wafers provided
by foundries will increase over time. We expect to maintain
sufficient internal wafer fabrication capacity to meet substantially all our
analog production needs.
In
addition to using foundries to supplement our wafer fabrication capacity, we
selectively use subcontractors to supplement our assembly/test
capacity. We generally use subcontractors for assembly/test of
products that would be less cost-efficient to complete in-house (e.g.,
relatively low-volume products that are unlikely to keep internal equipment
fully utilized), or in the event demand temporarily exceeds our internal
capacity. We believe we often have a cost advantage in maintaining
internal assembly/test capacity. Accordingly, we have recently opened
an environmentally efficient assembly/test facility in the Philippines, and the
facility is in the initial stages of production.
This
internal/external manufacturing strategy is designed to reduce the level of our
required capital expenditures, and thereby reduce our subsequent levels of
depreciation. Expected end results include less fluctuation in our
profit margins due to changing product demand, and lower cash requirements for
expanding and updating our manufacturing capabilities. As our
internal manufacturing efforts shift to a higher percentage of analog products,
an increasing proportion of our capital expenditures is devoted to assembly/test
facilities and equipment. This is primarily due to the lower capital
needs of analog wafer manufacturing equipment.
Product
cycle
The
global semiconductor market is characterized by constant, though generally
incremental, advances in product designs and manufacturing
methods. Chip prices and manufacturing costs tend to decline over
time as manufacturing methods and product life cycles
mature. Typically, new chips are produced in limited quantities at
first and then ramp to high-volume production over
time. Consequently, new products tend not to have a significant
impact on revenue for one or more quarters after they are
introduced. In the discussion below, changes in our shipments are
caused by changing demand for our products unless otherwise noted.
Market
cycle
The
“semiconductor cycle” is an important concept that refers to the ebb and flow of
supply, with relatively stable demand. The semiconductor market
historically has been characterized by periods of tight supply caused by
strengthening demand and/or insufficient manufacturing capacity, followed by
periods of surplus inventory caused by weakening demand and/or excess
manufacturing capacity. This cycle is affected by the significant
time and money required to build and maintain semiconductor manufacturing
facilities.
Seasonality
Our
revenue and operating results are subject to some seasonal
variation. Sales of our semiconductor products are seasonally weaker
in the first quarter than in other quarters, particularly for products sold into
cell phones and consumer electronics applications that have stronger sales later
in the year as manufacturers prepare for the holiday selling
season. Calculator revenue is tied to the U.S. back-to-school season
and, as a result, is at its highest in the second and third
quarters. Royalty revenue is not always uniform or predictable, in
part due to the performance of our licensees and in part due to the timing of
new license agreements or the expiration and renewal of existing
agreements.
Tax
considerations
We
operate in a number of tax jurisdictions and are subject to several types of
taxes including those that are based on income, capital, property and payroll,
as well as 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.
Third-quarter 2009
results
Our
third-quarter revenue was $2.88 billion, net income was $538 million and
earnings per share (EPS) were $0.42.
Our
performance in the quarter exceeded our expectations and was led by a second
consecutive quarter of 20-percent growth in Analog. We are encouraged
with the strong sequential increase in demand for our products over the past two
quarters as our customers are winding down their inventory corrections
and have begun to increase production levels in their factories. This
revenue growth, combined with our early actions to pare costs so that we would
not be dependent upon an uncertain rebound in the overall economy, has resulted
in solid improvements in our profitability.
Our
balance sheet is strong and has allowed us to opportunistically make investments
in Analog and Embedded Processing throughout this downturn that should
provide returns for years to come. For example, we are increasing our
investments in manufacturing capacity to support higher levels of growth,
including start-up of the world’s first facility to produce analog chips on
300-millimeter wafers. Applying advanced manufacturing technology to
analog at an attractive cost will give us an opportunity to accelerate our
strategy and extend our leadership.
TEXAS
INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated
Statements of Income
(Millions
of dollars, except share and per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
2,880 |
|
|
$ |
3,387 |
|
|
$ |
2,457 |
|
Cost
of revenue
|
|
|
1,399 |
|
|
|
1,744 |
|
|
|
1,333 |
|
Gross
profit
|
|
|
1,481 |
|
|
|
1,643 |
|
|
|
1,124 |
|
Research
and development (R&D)
|
|
|
368 |
|
|
|
507 |
|
|
|
369 |
|
Selling,
general and administrative (SG&A)
|
|
|
340 |
|
|
|
390 |
|
|
|
327 |
|
Restructuring
expense
|
|
|
10 |
|
|
|
- |
|
|
|
85 |
|
Operating
profit
|
|
|
763 |
|
|
|
746 |
|
|
|
343 |
|
Other
income (expense) net
|
|
|
2 |
|
|
|
10 |
|
|
|
13 |
|
Income
before income taxes
|
|
|
765 |
|
|
|
756 |
|
|
|
356 |
|
Provision
for income taxes
|
|
|
227 |
|
|
|
193 |
|
|
|
96 |
|
Net
income
|
|
$ |
538 |
|
|
$ |
563 |
|
|
$ |
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.42 |
|
|
$ |
.43 |
|
|
$ |
.20 |
|
Diluted
|
|
$ |
.42 |
|
|
$ |
.43 |
|
|
$ |
.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,255 |
|
|
|
1,304 |
|
|
|
1,267 |
|
Diluted
|
|
|
1,268 |
|
|
|
1,315 |
|
|
|
1,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per share of common stock
|
|
$ |
.11 |
|
|
$ |
.10 |
|
|
$ |
.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
51.4 |
% |
|
|
48.5 |
% |
|
|
45.7 |
% |
R&D
|
|
|
12.7 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
SG&A
|
|
|
11.8 |
% |
|
|
11.5 |
% |
|
|
13.3 |
% |
Operating
profit
|
|
|
26.5 |
% |
|
|
22.0 |
% |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of Financial
Results
Revenue
for the third quarter of 2009 was $2.88 billion, a decrease of $507 million, or
15 percent, from the year-ago quarter as revenue declined across all segments,
particularly in our Wireless segment. Revenue increased $423 million,
or 17 percent, from the prior quarter due to growth in all segments,
particularly in our Analog segment.
Gross
profit for the third quarter of 2009 was $1.48 billion, or 51.4 percent of
revenue, a decrease of $162 million, or 10 percent, from the year-ago quarter
due to lower revenue. This decrease was partially offset by the
favorable impact of lower manufacturing costs. Gross profit increased $357
million, or 32 percent, from the prior quarter primarily due to higher
revenue.
Operating
expenses for the third quarter of 2009 were $368 million for R&D and $340
million for SG&A. R&D expense decreased $139 million, or 27
percent, from a year ago primarily due to the combination of the effects of our
previously-announced employment reductions and, to a lesser extent, our
cost-control efforts. R&D expense was about even compared with
the prior quarter. SG&A expense decreased $50 million, or 13
percent, from the year-ago quarter primarily due to the effects of employment
reductions. SG&A increased $13 million, or 4 percent, from the
prior quarter primarily due to higher compensation-related costs resulting from
our improved profitability.
Restructuring
costs in the third quarter of 2009 were $10 million compared with $85 million in
the prior quarter. The restructuring costs in the third quarter were
primarily for additional severance and benefits costs (see Note 2 to the
Financial Statements for a detailed discussion of these charges and payments
made during the quarter). We expect to incur restructuring charges
equivalent to about one cent of earnings per share in the fourth quarter of
2009. As of September 30, 2009, a total of about 3,900 jobs have been
eliminated as a result of these actions.
For the
third quarter of 2009, we had operating profit of $763 million, an increase of
$17 million, or 2 percent, compared with the year-ago quarter, and an increase
of $420 million, or 122 percent, compared with the previous
quarter. The increase from a year ago was due to lower operating
expenses. The increase from the prior quarter was primarily due to
higher revenue and the associated higher gross profit. Operating
profit increased from the prior quarter in all segments.
As of
September 30, 2009, the estimated annual effective tax rate for 2009 is expected
to be about 28 percent (see Note 3 to the Financial Statements for additional
information).
Quarterly
income taxes are calculated using the estimated annual effective tax
rate.
The tax
provision for the third quarter of 2009 was $227 million, compared with $193
million in the year-ago quarter. The increase was due to a change in discrete
tax items, partially offset by the federal research tax credit, which was not in
effect in the year-ago quarter. We had discrete tax charges of $14 million in
the third quarter of 2009, compared with $34 million of discrete tax benefits in
the year-ago quarter. These items were primarily related to
adjustments identified through the completion of tax returns for prior years.
For the second quarter of 2009 we had a tax provision of $96
million. The sequential increase in the tax provision for the third
quarter of 2009 was due to higher income before income taxes.
In the
third quarter of 2009, we had net income of $538 million, or earnings per share
of $0.42, compared with net income of $563 million, or earnings per share of
$0.43, for the year-ago quarter, and $260 million, or earnings per share of
$0.20, for the prior quarter.
Orders in
the third quarter were $3.11 billion, a decrease of 4 percent from the
year-ago quarter. Compared with the prior quarter, orders increased
11 percent.
Segment
results
Analog
|
|
|
3Q09
|
|
|
|
3Q08
|
|
|
3Q09
vs.
3Q08
|
|
|
|
2Q09
|
|
|
3Q09
vs.
2Q09
|
|
Revenue
|
|
$
|
1,184
|
|
|
$
|
1,289
|
|
|
|
-8
|
%
|
|
$
|
983
|
|
|
|
20
|
%
|
|
Operating
profit*
|
|
|
306
|
|
|
|
274
|
|
|
|
12
|
%
|
|
|
96
|
|
|
|
219
|
%
|
|
Operating
profit % of revenue
|
|
|
25.8
|
%
|
|
|
21.2
|
%
|
|
|
|
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
4
|
|
|
$
|
--
|
|
|
|
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog
revenue decreased 8 percent from the year-ago quarter primarily due to lower
shipments of high-volume analog & logic products, and to a lesser extent,
high-performance analog products. Partially offsetting these
decreases were increased shipments of power management
products. Compared with the prior quarter, revenue increased 20
percent, primarily due to increased shipments of high-volume analog & logic
products, and to a lesser extent, shipments of power management and
high-performance analog products. Operating profit increased compared with the
year-ago quarter primarily due to a combination of reduced operating expenses
and, to a lesser extent, improvements in gross profit. Operating
profit increased from the previous quarter primarily due to higher
revenue and the associated higher gross profit.
Embedded
Processing
|
|
|
3Q09
|
|
|
|
3Q08
|
|
|
3Q09
vs.
3Q08
|
|
|
|
2Q09
|
|
|
3Q09
vs.
2Q09
|
|
Revenue
|
|
$
|
393
|
|
|
$
|
427
|
|
|
|
-8
|
%
|
|
$
|
350
|
|
|
|
12
|
%
|
Operating
profit*
|
|
|
75
|
|
|
|
73
|
|
|
|
3
|
%
|
|
|
28
|
|
|
|
168
|
%
|
Operating
profit % of revenue
|
|
|
19.0
|
%
|
|
|
17.0
|
%
|
|
|
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
2
|
|
|
$
|
--
|
|
|
|
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
Processing revenue decreased 8 percent from the year-ago quarter primarily due
to normal price declines in catalog products, and to a lesser extent, decreased
shipments of communications infrastructure and automotive products. Compared
with the prior quarter, revenue increased 12 percent primarily due to higher
shipments of catalog products. Shipments of automotive products also
increased, although by a lesser amount. Operating profit increased 3
percent compared with the year-ago quarter due to reduced operating
expenses. Compared with the prior quarter, operating profit increased
due to higher revenue and the associated higher gross profit.
Wireless
|
|
|
3Q09
|
|
|
|
3Q08
|
|
|
3Q09
vs.
3Q08
|
|
|
|
2Q09
|
|
|
3Q09
vs.
2Q09
|
|
Revenue
|
|
$
|
675
|
|
|
$
|
915
|
|
|
|
-26
|
%
|
|
$
|
601
|
|
|
|
12
|
%
|
Operating
profit*
|
|
|
110
|
|
|
|
155
|
|
|
|
-29
|
%
|
|
|
58
|
|
|
|
90
|
%
|
Operating
profit % of revenue
|
|
|
16.3
|
%
|
|
|
16.9
|
%
|
|
|
|
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
3
|
|
|
$
|
--
|
|
|
|
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless
revenue decreased 26 percent from the year-ago quarter due to decreased
shipments of baseband products, and to a lesser extent, OMAP applications
processor products. Baseband revenue was $450 million in the third
quarter, a decrease of 33 percent from a year ago. Compared with the
previous quarter, Wireless revenue increased 12 percent primarily due to higher
shipments of baseband products, and to a lesser extent, connectivity products
and OMAP applications processor products. Baseband revenue increased
10 percent from the prior quarter. Operating profit decreased 29
percent compared with the year-ago quarter, due to lower revenue and the
associated lower gross profit, partially offset by lower operating
expenses. Compared with the prior quarter, operating profit increased
primarily due to the combination of higher revenue and the associated gross
profit, and lower restructuring expenses.
Other
|
|
|
3Q09
|
|
|
|
3Q08
|
|
|
3Q09
vs.
3Q08
|
|
|
|
2Q09
|
|
|
3Q09
vs.
2Q09
|
|
Revenue
|
|
$
|
628
|
|
|
$
|
756
|
|
|
|
-17
|
%
|
|
$
|
523
|
|
|
|
20
|
%
|
Operating
profit*
|
|
|
272
|
|
|
|
244
|
|
|
|
11
|
%
|
|
|
161
|
|
|
|
69
|
%
|
Operating
profit % of revenue
|
|
|
43.4
|
%
|
|
|
32.3
|
%
|
|
|
|
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
1
|
|
|
$
|
--
|
|
|
|
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenue decreased 17 percent from the year-ago quarter, primarily due to, in
decreasing order, lower shipments of RISC microprocessors, ASIC products and DLP
products and lower royalties. Compared with the previous quarter,
revenue increased 20 percent due to the combination of a seasonal increase in
shipments of calculators and, to a lesser extent, increased shipments of DLP
products and higher royalties. These increases were partially offset by lower
shipments of RISC microprocessors. Operating profit for the third
quarter of 2009 was higher than the year-ago quarter due to lower operating
expenses. Compared with the prior quarter, operating profit increased
primarily due to higher revenue and the associated higher gross
profit.
First nine months of 2009
results
For the
first nine months of 2009, we report the following:
Revenue
of $7.42 billion was $2.59 billion, or 26 percent, lower than the year-ago
period as a result of the downturn in global markets.
Gross
profit was $3.41 billion, a decrease of $1.74 billion, or 34 percent, from the
year-ago period primarily due to lower revenue, and to a lesser extent, the
impact of lower factory utilization. About $400 million of the
decline in gross profit resulted from lower factory
utilization. Gross profit margin was 45.9 percent of revenue compared
with 51.4 percent in the year-ago period.
R&D
expense of $1.12 billion decreased 26 percent compared with the year-ago period
primarily due to the combination of our employment reductions and, to a lesser
extent, cost-control efforts. R&D expense was 15.1 percent of
revenue, unchanged from the year-ago period.
SG&A
expense was $972 million, a decrease of 22 percent from $1.25 billion in the
year-ago period, primarily due to the combination of our employment reductions
and, to a lesser extent, cost-control efforts. SG&A expense was
13.1 percent of revenue compared with 12.5 percent in the year-ago
period.
Restructuring
expenses were $200 million, compared with zero in the year-ago
period.
Operating
profit was $1.12 billion, or 15.0 percent of revenue, compared with $2.39
billion, or 23.8 percent of revenue, in the year-ago period. The
decrease was due to lower gross profit, and to a lesser extent, higher
restructuring charges. These decreases were partially offset by lower
operating expenses.
Other
income and expense net (OI&E) was $20 million, a decrease of $38 million
from the year-ago period due to lower interest income.
The tax
provision for the first nine months of 2009 was $321 million, compared with $632
million in the same period of 2008. The decrease was due to lower
income before income taxes, partially offset by a change in discrete tax
items. Included in the tax provision for the first nine months of
2009 were $9 million in discrete tax charges primarily related to adjustments
identified through the completion of tax returns for prior
years. This compares with discrete tax benefits of $113 million in
the year-ago period, which were primarily due to our decision to indefinitely
reinvest the accumulated earnings of a non-U.S. subsidiary.
Net
income was $815 million compared with $1.81 billion in the year-ago
period. Earnings per share were $0.63 per share, compared with $1.35
per share in the year-ago period.
Orders of
$8.10 billion were down 19 percent from the year-ago period.
Segment
results
Analog
|
|
|
YTD
2009
|
|
|
|
YTD
2008
|
|
|
YTD
2009
vs.
YTD
2008
|
|
Revenue
|
|
$
|
2,981
|
|
|
$
|
3,841
|
|
|
|
-22
|
%
|
Operating
profit*
|
|
|
367
|
|
|
|
972
|
|
|
|
-62
|
%
|
Operating
profit % of revenue
|
|
|
12.3
|
%
|
|
|
25.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
81
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analog
revenue decreased 22 percent from the year-ago period due to lower shipments of,
in decreasing order, high-volume analog & logic products, high-performance
analog products and power management products. Compared with the year-ago
period, operating profit decreased 62 percent, primarily due to lower
revenue.
Embedded
Processing
|
|
|
YTD
2009
|
|
|
|
YTD
2008
|
|
|
YTD
2009
vs.
YTD
2008
|
|
Revenue
|
|
$
|
1,059
|
|
|
$
|
1,291
|
|
|
|
-18
|
%
|
Operating
profit*
|
|
|
105
|
|
|
|
270
|
|
|
|
-61
|
%
|
Operating
profit % of revenue
|
|
|
9.9
|
%
|
|
|
20.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
40
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded
Processing revenue decreased 18 percent from the year-ago period, primarily due
to decreased shipments of catalog products, and to a lesser extent, automotive
products. Compared with the year ago-period, operating profit decreased 61
percent, primarily due to lower revenue.
Wireless
|
|
|
YTD
2009
|
|
|
|
YTD
2008
|
|
|
YTD
2009
vs.
YTD
2008
|
|
Revenue
|
|
$
|
1,827
|
|
|
$
|
2,737
|
|
|
|
-33
|
%
|
Operating
profit*
|
|
|
154
|
|
|
|
434
|
|
|
|
-65
|
%
|
Operating
profit % of revenue
|
|
|
8.5
|
%
|
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
58
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless
revenue declined 33 percent from the year-ago period primarily due to decreased
shipments of baseband products, and to a lesser extent, OMAP applications
processor products. These decreases were partially offset by
increased shipments of connectivity products. Baseband revenue was $1.26
billion, a decrease of 39 percent from a year ago. Compared with the
year-ago period, Wireless operating profit decreased 65 percent, due to lower
revenue.
Other
|
|
|
YTD
2009
|
|
|
|
YTD
2008
|
|
|
YTD
2009
vs.
YTD
2008
|
|
Revenue
|
|
$
|
1,555
|
|
|
$
|
2,141
|
|
|
|
-27
|
%
|
Operating
profit*
|
|
|
490
|
|
|
|
711
|
|
|
|
-31
|
%
|
Operating
profit % of revenue
|
|
|
31.5
|
%
|
|
|
33.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Includes
restructuring expenses of
|
|
$
|
21
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenue decreased 27 percent from the year-ago period due to, in decreasing
order, lower shipments of RISC microprocessors, DLP products and
calculators. Lower royalties also contributed to the
decline. Compared with the year-ago period, operating profit
decreased 31 percent, due to lower revenue.
Financial
condition
At the
end of the third quarter of 2009, total cash (cash and cash equivalents plus
short-term investments) was $2.83 billion. This was $287 million
higher than at the end of 2008.
Accounts
receivable were $1.44 billion at the end of the quarter. This was an
increase of $522 million from the end of 2008. Days sales outstanding
were 45 at the end of the quarter compared with 33 at the end of 2008. Days
sales outstanding were unusually low at year end due to a sharp decrease in
shipments to customers during the fourth quarter of 2008, particularly in
December.
Inventory
was $1.12 billion at the end of the quarter. This was a reduction of
$259 million from the end of 2008. Days of inventory at the end of
the third quarter were 72, compared with 89 days at the end of
2008.
Depreciation
in the first nine months of 2009 was $668 million, a decrease of $70 million
from the same period a year ago. Capital spending in the first nine
months of 2009 totaled $317 million. This was a decrease of $369
million from a year ago primarily due to lower expenditures for analog
manufacturing facilities, and to a lesser extent, for semiconductor
assembly/test facilities and equipment. We expect our capital
expenditures for 2009 to be about $800 million. We are purchasing
additional semiconductor assembly/test equipment to alleviate the stress of
current high demand for certain product types. In addition, beginning
in the fourth quarter, we will be equipping a 300-millimeter-wafer analog
manufacturing facility. Once that facility is equipped, we would
expect our capital expenditures to return to a range of about 5% to 8% of
revenue.
Liquidity
and capital resources
Our
sources of liquidity are our cash flows from operations, cash and cash
equivalents, short-term investments and revolving credit
facilities. Cash flow from operations for the first nine months of
2009 was $1.64 billion, a decrease of $574 million from the year-ago
period. This decrease was due to lower net income, partially offset
by changes in working capital.
We have
$1.29 billion of cash and cash equivalents and $1.53 billion of short-term
investments as of September 30, 2009. We have a multi-year $1 billion
revolving credit facility and a non-U.S. revolving credit facility of $175
million. As of September 30, 2009, these credit facilities were not
being utilized.
For the
first nine months of 2009, cash used in investing activities was $445 million,
compared with $91 million of cash provided in the year-ago
period. The change in cash from investing activities primarily
reflects the movement in 2008 of our investments from short-term investments to
cash securities. This was partially offset by lower capital
expenditures. We also used $155 million for acquisitions in the first
nine months of 2009, compared with $19 million in the year-ago period (see Note
1 to the Financial Statements for additional information).
For the
first nine months of 2009, net cash used in financing activities was $949
million compared with $1.92 billion in the year-ago period. We used
$602 million of cash in the first nine months of 2009 to repurchase 30.5 million
shares of our common stock. In the same period last year, we used
$1.74 billion of cash to repurchase 60 million shares of common
stock.
In
October 2009, we raised our quarterly cash dividend rate by $0.01 per common
share to $0.12 per share, effective with the dividend payable November 16, 2009,
to stockholders of record on October 30, 2009. Cash dividends paid
during the first nine months of 2009 were $418 million, compared with $396
million for the same period last year.
In 2009,
we expect approximately the following: an annual effective tax rate of 28
percent; R&D expense of $1.5 billion; capital expenditures of $800 million;
and depreciation of $900 million.
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 page 48 of Exhibit 13 to our Form 10-K
for the year ended December 31, 2008, 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 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)
|
July
1 through July 31, 2009
|
10,439,000
|
$23.94
|
10,439,000
|
$2.95
billion
|
August
1 through August 31, 2009
|
50,000
|
$18.74
|
50,000
|
$2.95
billion
|
September
1 through September 30, 2009
|
|
|
|
|
Total |
10,489,000 |
$23.92 |
10,489,000(2) |
$2.95
billion |
(1)
|
All
purchases during the quarter were made under an 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
this authorization.
|
(2)
|
All
purchases were made through open-market purchases except for 50,000 shares
that were acquired in August through a privately negotiated forward
purchase contract with a non-affiliated financial
institution. The forward purchase contract was designed to
minimize the adverse impact on our earnings from the effect of stock
market value fluctuations on the portion of our deferred compensation
obligations denominated in TI
stock.
|
ITEM
6. Exhibits.
Designation
of Exhibits in This Report
|
|
|
|
10.1
|
Texas
Instruments 2009 Long-Term Incentive Plan.
|
10.2
|
Texas
Instruments Executive Officer Performance Plan.
|
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.
|
101.INS
|
XBRL
Instance Document.*
|
101.SCH
|
XBRL
Taxonomy Extension Schema.*
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase.*
|
101.LAB
|
XBRL
Taxonomy Extension Labels Linkbase.*
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase.*
|
101.DEF
|
XBRL
Taxonomy Extension Definition
Document.*
|
“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 in key markets such as
communications, entertainment electronics and
computing;
|
·
|
TI's
ability to maintain or improve profit margins, including its ability to
utilize its manufacturing facilities at sufficient levels to cover its
fixed operating costs, in an intensely competitive and cyclical
industry;
|
·
|
TI's
ability to develop, manufacture and market innovative products in a
rapidly changing technological
environment;
|
·
|
TI's
ability to compete in products and prices in an intensely competitive
industry;
|
·
|
TI's
ability to maintain and enforce a strong intellectual property portfolio
and obtain needed licenses from third
parties;
|
·
|
Expiration
of license agreements between TI and its patent licensees, and market
conditions reducing royalty payments to
TI;
|
·
|
Economic,
social and political conditions in the countries in which TI, its
customers or its suppliers operate, including security risks, health
conditions, possible disruptions in transportation networks and
fluctuations in foreign currency exchange
rates;
|
·
|
Natural
events such as severe weather and earthquakes in the locations in which
TI, its customers or its suppliers
operate;
|
·
|
Availability
and cost of raw materials, utilities, manufacturing equipment, third-party
manufacturing services and manufacturing
technology;
|
·
|
Changes
in
the tax rate applicable to TI as the result of changes in tax law, the
jurisdictions in which profits are determined to be earned and taxed, the
outcome of tax audits and the ability to realize deferred tax
assets;
|
·
|
Changes in
laws and regulations to which TI or its suppliers are or may become
subject, such as those imposing fees or reporting, or substitution
costs relating to the discharge of emissions into the environment or the
use of certain raw materials in our manufacturing
processes;
|
·
|
Losses
or curtailments of purchases from key customers and the timing and amount
of distributor and other customer inventory
adjustments;
|
·
|
Customer
demand that differs from our
forecasts;
|
·
|
The
financial impact of inadequate or excess TI inventory that results from
demand that differs from
projections;
|
·
|
The
ability of TI and its customers and suppliers to access their bank
accounts and lines of credit or otherwise access the capital
markets;
|
·
|
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
|
|
|
|
Date: October
30, 2009
|
|
By:
|
|
/s/ KEVIN P. MARCH
|
|
|
|
|
Kevin
P. March
|
|
|
|
|
Senior
Vice President
|
|
|
|
|
and
Chief Financial
Officer
|