TI reports financial results for 3Q12
Texas Instruments Incorporated (TI) announced third-quarter revenue of $3.39 billion, net income of $784 million and earnings per share of 67 cents. EPS includes 7 cents of charges associated with the company's acquisition of National Semiconductor and restructuring that were comprehended in TI's outlook provided in September. EPS also includes a benefit of 22 cents for changes in taxes and a Japanese pension program that were not included in the company's outlook.
"TI revenue grew sequentially and operations were well executed even though the economy and semiconductor market remained weak and likely will get weaker in the fourth quarter," said Rich Templeton, TI's chairman, president and CEO. "Our core businesses of Analog and Embedded Processing each grew revenue by 2 percent. Our operations were disciplined, with expenses and inventory levels both down, and our core businesses grew profit faster than revenue."
Regarding TI's business model, which is focused on Analog and Embedded Processing, Templeton said, "These two core businesses now comprise 70 percent of our revenue. The importance of this strategy shows in the strong cash that we generate even in weak markets and in our ability to return that cash to shareholders. In the third quarter, our free cash flow exceeded $1 billion, and we returned more than 75 percent of it through dividends and share repurchases. Our confidence in the long-term sustainability of our business model drove the dividend increase of 24 percent that we announced in the quarter."
Acquisition charges associated with TI's acquisition of National Semiconductor are $106 million in the third quarter and include amortization of intangibles, retention bonuses and other items. Included in Restructuring charges/other is a net benefit of $144 million associated with the Japan pension program change.
Partially offsetting this benefit are expenses of $22 million associated with the previously announced planned closure or potential sale of several older factories.
Compared with a year ago, gross profit was about even as the effect of lower revenue and the costs associated with lower levels of factory utilization were offset by profit from higher business interruption insurance proceeds related to the March 2011 earthquake in Japan, as well as lower manufacturing costs. Compared with the prior quarter, higher gross profit primarily reflects higher revenue, specifically business interruption insurance proceeds. Business interruption insurance proceeds in the quarter were $60 million.
Operating profit increased from a year ago as the benefit from the Japan pension program change and lower acquisition charges more than offset higher operating expenses that resulted primarily from the inclusion of a full quarter of Silicon Valley Analog. Compared with the second quarter, operating profit was higher primarily due to the Japan pension program change, as well as higher gross profit and lower operating expenses.
Results include a $90 million discrete tax benefit, which is primarily due to additional U.S. tax benefits for manufacturing related to the years 2007 through 2011, and a $67 million benefit from the cumulative effect of the company's lowering its estimated effective tax rate for 2012. The lower tax rate estimate was primarily due to a revised estimate of the impact of non-U.S. effective tax rates.
Analog (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog)
* Compared with the year-ago quarter, revenue increased due to the inclusion of a full quarter of Silicon Valley Analog revenue. Revenue from Power Management and High Volume Analog & Logic increased while revenue from High Performance Analog declined.
* Compared with the prior quarter, revenue increased primarily due to growth in High Volume Analog & Logic, as well as Power Management. Revenue from Silicon Valley Analog and High Performance Analog declined.
* Operating profit increased from the year-ago quarter as higher gross profit more than offset higher operating expenses. Operating profit increased from the prior quarter primarily due to operating expense reductions, as well as higher gross profit.
Embedded Processing (includes digital signal processor and microcontroller catalog products that are sold across a wide variety of markets as well as application-specific products that are used in communications infrastructure and automotive electronics)
* Compared with the year-ago quarter, the decline in revenue was due to lower revenue from products sold into communications infrastructure applications. Revenue from products sold into automotive applications and catalog products increased.
* Compared with the prior quarter, the increase in revenue was due to catalog products. Revenue from products sold into communications infrastructure applications declined, and revenue from products sold into automotive applications was even.
* Operating profit decreased from a year ago primarily due to lower gross profit. Operating profit increased from the prior quarter primarily due to operating expense reductions.
Wireless (includesOMAP(TM)applications processors, connectivity products and baseband products
* Compared with both the year-ago and prior quarters, revenue declined primarily due to baseband products. Revenue from connectivity products also declined while revenue from OMAP applications processors increased.
* Operating profit from the year-ago quarter became an operating loss due to lower gross profit. The operating loss increased from the prior quarter due to lower revenue and the associated gross profit.
Other: (includes DLP(Ã‚Â®) products, custom ASIC products, calculators and royalties)
* Compared with the year-ago quarter, revenue was down due to lower DLP revenue, the expiration of transitional supply agreements associated with previously acquired factories, and lower calculator revenue. These more than offset higher revenue from the business interruption insurance proceeds.
* Compared with the prior quarter, revenue was up primarily due to the business interruption insurance proceeds, and to a lesser extent higher royalties and increased calculator revenue. Revenue from DLPproducts and custom ASIC products declined.
* Operating profit increased from a year ago primarily due to the Japan pension program change, although lower acquisition charges and lower operating expenses also contributed. Operating profit increased from the prior quarter primarily due to the pension program change, although business interruption insurance proceeds also contributed to a lesser extent.
3Q12 additional financial information
* Orders were $3.24 billion, up 6 percent from the year-ago quarter and down 5 percent from the prior quarter.
* Inventory was $1.85 billion at the end of the quarter, down $117 million from a year ago primarily due to the fair value write-up of inventory that was acquired from National Semiconductor. Inventory was down $37 million from the prior quarter.
* Capital expenditures were $149 million in the quarter compared with $193 million a year ago and $146 million in the prior quarter. Capital expenditures in the quarter were primarily for semiconductor manufacturing equipment.
* In August 2012, the company issued $1.5 billion of new long-term debt at an average coupon rate of 1.05%. The company repaid $500 million of commercial paper borrowings in the quarter and has no remaining commercial paper obligations at the end of the quarter.
* The company used $600 million in the quarter to repurchase 20.6 million shares of its common stock and paid dividends of $194 million.
For the fourth quarter of 2012, TI expects:
* Revenue: $2.83 - 3.07 billion
* Earnings per share: $0.23 - 0.31
The fourth quarter's EPS will be negatively affected by about 6 cents from acquisition and restructuring charges. TI will update its fourth-quarter outlook on December 10, 2012.
For the full year of 2012, TI expects approximately the following:
* R&D expense: $1.9 billion
* Capital expenditures: $0.5 billion, down from the prior expectation of $0.7 billion
* Depreciation: $1.0 billion
* Annual effective tax rate: 22%, down from the prior expectation of 26%
The tax rate estimate is based on current law and does not assume reinstatement of the federal R&D tax credit, which expired at the end of 2011.