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TI Reports 4Q05 and 2005 Financial Results



* 4Q05 EPS Is $0.40, Including $0.03 of Stock-Based Compensation Expense
* 4Q05 Semiconductor Operating Margin Sets New Record
* TI Achieves Record Revenue and Operating Margin for 2005
* TI Board Authorizes Additional $5 Billion Stock Repurchase

Conference Call on TI Web Site at 4:30 p.m. Central Time Today
www.ti.com
DALLAS, Jan. 23 /PRNewswire-FirstCall/ -- Texas Instruments Incorporated (NYSE: TXN) (TI) today reported revenue for the fourth quarter of 2005 of $3.59 billion, up 14 percent from the year-ago quarter as growth in the Semiconductor segment accelerated. Fourth-quarter revenue was even with the third quarter of 2005 as growth in semiconductors was offset by the expected seasonal decline of graphing calculator sales in the Educational & Productivity Solutions segment. For the year, TI revenue reached a record $13.39 billion, an increase of 6 percent. TI also set a new high for operating margin of 20.8 percent.

The company's Semiconductor segment reported growth of 3 percent sequentially for revenue of $3.23 billion, a new quarterly record, and expanded its operating margin to a second consecutive quarterly high. Semiconductor revenue grew 15 percent from the year-ago quarter due to demand for TI's digital signal processors (DSPs) and analog chips used in high-growth communications and entertainment electronics.

Earnings per share were $0.40 in the fourth quarter and were $1.39 for the year. Earnings per share include stock-based compensation expense of $0.03 in the fourth quarter and $0.07 for the year. The company began expensing stock options in the third quarter of 2005 and, therefore, equivalent stock-based compensation expense was not reflected in prior periods.

Separately, the company announced that its Board of Directors has authorized a $5 billion stock repurchase. This authorization is in addition to previously announced stock repurchase authorizations.

"2005 was TI's 75th year in operation, and as we crossed that milestone we delivered record annual results for revenue, operating profit, operating margin and operating cash flow," said Rich Templeton, TI president and chief executive officer. "We also gained market share in our core semiconductor technologies of DSP and analog for the fourth consecutive year.

"Highlights for 2005 include a reinforced leadership position in semiconductors for wireless cell phones. We solidly achieved our goal to exceed $1 billion of semiconductor revenue in the newest cell-phone generation, known as 3G, by doubling our shipments of OMAP(TM) application processors and almost tripling our shipments of baseband modems. Other highlights include initial shipments of a new family of DSPs for digital video known as DaVinci(TM), our agreement to acquire radio frequency expert Chipcon for high-performance analog, customer sampling of our multi-mode UMTS chipset for wireless cell phones, and strong consumer acceptance of our DLP(R) technology in 1080p high-definition televisions.

"TI enters 2006 in excellent health. Customer and channel inventories appear lean, and demand is solid. Overall, the combination of our customers, products and manufacturing abilities will enable us to keep evolving TI into a company that produces superior revenue and earnings growth on a sustained basis."

Gross Profit

In the fourth quarter, TI's gross profit was $1.73 billion, or 48.3 percent of revenue. Gross profit declined $37 million from the third quarter due to a seasonal decline in the Educational & Productivity Solutions segment, which more than offset gross profit increases in the Semiconductor and Sensors & Controls segments. Gross profit increased $400 million from the year-ago quarter, primarily due to higher gross margin in Semiconductor.

For the year, gross profit of $6.36 billion, or 47.5 percent of revenue, increased 13 percent, primarily due to higher gross margin in the company's Semiconductor segment.

Stock-based compensation expense included in cost of revenue was $17 million in the fourth quarter and $33 million for the year 2005.

Operating Expenses

In the fourth quarter, research and development (R&D) expense of $500 million, or 13.9 percent of revenue, decreased $27 million sequentially, primarily due to seasonally lower pay and benefits as employees observed holidays and took vacation time. R&D increased $13 million from the year-ago quarter. For the year, R&D expense of $2.02 billion, or 15.0 percent of revenue, increased $37 million. Stock-based compensation expense included in R&D was $27 million in the fourth quarter and $53 million in 2005.

In the fourth quarter, selling, general and administrative (SG&A) expense of $424 million, or 11.8 percent of revenue, decreased $5 million sequentially as seasonally lower pay and benefits offset higher semiconductor marketing expenses. SG&A increased $61 million from a year ago. For the year, SG&A expense of $1.56 billion, or 11.6 percent of revenue, increased 8 percent. Stock-based compensation expense included in SG&A was $42 million in the fourth quarter and $92 million in 2005.

Operating Profit

In the fourth quarter, operating profit of $810 million, or 22.6 percent of revenue, was about even sequentially as the seasonal decline in the Educational & Productivity Solutions segment offset strong contribution from the Semiconductor segment. Operating profit increased $326 million from the year-ago quarter due to higher operating margin in Semiconductor. Semiconductor operating margin was 28.1 percent of revenue, an increase of 11.0 percentage points from the year-ago quarter.

For the year, operating profit of $2.79 billion, or 20.8 percent of revenue, increased 26 percent due to higher operating margin in Semiconductor. Semiconductor operating margin of 23.9 percent of revenue increased 5.2 percentage points from the prior year.

Total stock-based compensation expense of $86 million in the fourth quarter and $178 million in 2005 was included in corporate activities.

Other Income (Expense) Net (OI&E)

OI&E of $51 million increased $2 million sequentially, and decreased $35 million from a year ago primarily due to favorable resolution of an open sales-tax item in the year-ago quarter.

For the year, OI&E of $206 million decreased by $29 million primarily due to lower income from settlements with the Italian government related to the company's former memory-chip operations.

Net Income

In the fourth quarter, net income was $655 million or $0.40 per share, including $0.03 of stock-based compensation expense. For the year, net income was $2.32 billion, or $1.39 per share, including $0.07 of stock-based compensation expense. The overall tax rate, which includes discrete tax items, was 24 percent for the fourth quarter and 22 percent for the year.

Orders

TI orders of $3.77 billion increased $27 million sequentially and $823 million from the year-ago quarter due to higher demand for Semiconductor products. For the year, TI orders of $13.92 billion increased 12 percent as demand grew for the company's Semiconductor products.

Cash

Cash flow from operations of $908 million decreased $606 million sequentially and $389 million from the year-ago quarter. For the year, cash flow from operations increased 20 percent to $3.77 billion.

At the end of the fourth quarter, total cash (cash and cash equivalents plus short-term investments) was $5.34 billion, up $84 million from the end of the previous quarter and down $1.02 billion from the end of the year-ago period. During the quarter, the company repurchased $870 million of TI common stock and paid $48 million in dividends. During 2005, the company repurchased $4.15 billion of TI common stock, reducing average diluted shares outstanding by almost 100 million shares, and paid $173 million in dividends. In 2004, the company repurchased $753 million of TI common stock, and paid $154 million in dividends.

In 2005, to avail the company of tax savings provided for under the American Jobs Creation Act, TI repatriated $1.3 billion of previously undistributed earnings of non-U.S. subsidiaries. During the fourth quarter, TI's Japan subsidiary borrowed $275 million in order to facilitate this process.

Capital Spending and Depreciation

Capital expenditures of $346 million decreased $104 million sequentially and increased $135 million from the year-ago quarter. For the year, capital expenditures of $1.33 billion increased by $32 million. TI's capital expenditures in the fourth quarter and the year were primarily for assembly and test equipment, advanced wafer fabrication equipment and construction of the company's new 300-millimeter manufacturing facility in Richardson, Texas.

Depreciation of $344 million increased $5 million sequentially and decreased $46 million from a year ago. For the year, depreciation was $1.38 billion, a decrease of $104 million.

Beginning in the first quarter of 2006, TI will change its method of depreciation from an accelerated to a straight-line method on its existing and future property, plant and equipment assets. This change is the result of a study that was conducted regarding the usage pattern of TI's long-lived depreciable assets. The study indicated a trend toward more consistent utilization of assets as TI has focused its product portfolio on differentiated products and supplemented its internal semiconductor manufacturing with supply from foundries.

Accounts Receivable and Inventories

Accounts receivable of $1.81 billion at the end of the fourth quarter decreased $103 million sequentially due to seasonally lower receivables in the company's Educational & Productivity Solutions segment. Accounts receivable increased $116 million from the year-ago quarter due to higher revenue. Days sales outstanding were 45 at the end of the fourth quarter compared with 48 at the end of the previous quarter and 48 at the end of the year-ago quarter.

Inventory of $1.27 billion at the end of the fourth quarter increased $115 million sequentially as the company built inventory from the lower-than- desired levels of the third quarter. For the year, inventory increased by $17 million compared with the end of 2004. The increases for both the quarter and the year were primarily in work-in-process, with fourth-quarter finished goods still remaining below desired levels. Days of inventory at the end of the fourth quarter were 62 compared with 57 at the end of the previous quarter and 62 at the end of the year-ago quarter.

Outlook

TI intends to provide a mid-quarter update to its financial outlook on March 6, 2006, by issuing a press release and holding a conference call. Both will be available on the company's web site.

The previously announced divestiture of the Sensors & Controls operations is expected to close in the first half of 2006. The financial results of this business will be accounted for as a discontinued operation beginning with the first quarter of 2006.