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Slide 1: TI reports financial results for 2Q08 • Download Financials in MS Excel Format (46KB) • Conference Call on TI Web Site at 4:30 p.m. Central Time Today Beginning with this earnings release, TI will describe revenue in four product categories: Analog, Embedded Processing, Wireless and Other. For a complete description of these changes, please reference the materials from the company’s conference call and webcast, held on July 1, 2008, available at www.ti.com/ir. DALLAS (July 21, 2008) – Texas Instruments (TI) (NYSE: TXN) today announced second-quarter revenue of $3.35 billion, net income of $588 million and earnings per share of $0.44. “Our core areas of Analog and Embedded Processing delivered solid revenue growth,” said Rich Templeton, TI’s chairman, president and CEO. “Each grew sequentially and increased 10 percent from a year ago. These technologies are critical to thousands of different types of electronic equipment, making them some of the most attractive markets in the semiconductor industry. We believe our portfolio combined with our passion to help customers solve critical problems will drive good long-term growth.” In total, TI’s revenue in the second quarter was in the lower half of the company’s range of expectations, as were earnings per share. Demand slowed unexpectedly in June primarily because distributors reduced inventory levels and did not replenish them late in the quarter. Additionally, Wireless revenue declined in the quarter, continuing its first-quarter weakness. “We believe this slower demand was due to a mix of reasons, including a weaker economic environment and greater confidence in TI’s ability to deliver products within short lead times,” Templeton said. “Our orders were up in the quarter and backlog grew, but we are cautious given the demand environment we just experienced. If demand strengthens as quickly as it slowed, we are well-positioned to meet it.” Amounts are in millions of dollars, except per-share amounts. Except as noted, financial results are for continuing operations. The sale of TI’s former Sensors & Controls business was completed on April 27, 2006, and that business is reported as a discontinued operation.
Slide 2: 2Q08 Revenue: Operating profit: Income: Earnings per share: Cash flow from operations: Revenue $ 3351 $ $ 833 588 2Q07 $ 3424 $ $ 809 614 vs. 2Q07 -2% 3% -4% 5% -42% $ $ 1Q08 $ 3272 807 662 vs. 1Q08 2% 3% -11% -10% -19% $ 0.44 $ 520 $ 0.42 $ 898 $ 0.49 $ 641 TI’s revenue declined 2 percent compared with the second quarter of last year as growth in Analog and Embedded Processing was not sufficient to offset declines in Wireless and Other revenue. Revenue grew 2 percent compared with the prior quarter as growth in Analog, Embedded Processing and Other more than offset the decline in Wireless. 2Q08 Analog: Embedded Processing: Wireless: Other: $ 1292 $ $ $ 436 903 720 2Q07 $ 1170 $ 397 $ 1024 $ 833 vs. 2Q07 10% 10% -12% -14% $ $ $ 1Q08 $ 1265 418 922 667 vs. 1Q08 2% 4% -2% 8% Note (1) (2) (3) (4) (5) The product categories include: q q Analog: high-performance analog, high-volume analog & logic Embedded Processing: catalog, communications infrastructure and automotive DSPs and microcontrollers Wireless: basebands, OMAP™ applications processors, connectivity products for handsets Other: DLP® products, calculators, RISC microprocessors, ASIC products, royalties q q
Slide 3: (1) Analog revenue growth in both comparisons was due to stronger demand for high-performance analog products. (2) Embedded Processing revenue growth in both comparisons was primarily due to stronger demand for catalog products, as well as communications infrastructure products. (3) Wireless revenue declines in both comparisons were due to lower sales of baseband products. (4) Other revenue decreased from a year ago due to declines across a number of product lines, especially the impact from the sale of a DSL product line in the third quarter of 2007 and lower demand for RISC microprocessors. Compared with the first quarter of 2008, Other revenue grew due to seasonal demand for calculators that more than offset lower revenue for RISC microprocessors. (5) The Other category includes revenue from the Education Technology segment of $176 million compared with $167 million in the year-ago quarter and $81 million in the prior quarter. Essentially all of this revenue is from sales of calculators. Additional financial information q Operating profit increased 3 percent from both the year-ago and prior quarters due to lower operating expenses. q Income declined 4 percent from the year-ago quarter due to lower interest income. Income declined 11 percent from the prior quarter due to a higher tax provision. The prior quarter included $81 million of discrete tax benefits. Orders were $3.46 billion, about even with the year-ago quarter and up 4 percent from the prior quarter. Inventory increased in the quarter to above the company’s desired levels. This was primarily due to higher manufacturing costs and lower-than-expected revenue in the quarter. Additionally, the company built calculator inventory to support the upcoming back-to-school season. q q q The company used $433 million in the quarter to repurchase 14.1 million shares of its common stock and paid dividends of $132 million. Outlook For the third quarter of 2008, TI expects: q q Revenue: $3.26 – 3.54 billion Earnings per share: $0.41 – 0.47 TI will update its third-quarter outlook on September 9, 2008. For the full year of 2008, TI continues to expect approximately the following: q q q q R&D expense: $2.0 billion Capital expenditures: $0.9 billion Depreciation: $1.0 billion Annual effective tax rate: 31% TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Slide 4: Consolidated Statements of Income (Millions of dollars, except share and per-share amounts) For Three Months Ended June 30, June 30, Mar. 31, 2008 2007 2008 Revenue Cost of revenue Gross profit Research and development (R&D) Selling, general and administrative (SG&A) Operating profit Other income (expense) net Income from continuing operations before income taxes Provision for income taxes Income from continuing operations Loss from discontinued operations, net of taxes Net income Basic earnings per common share: Income from continuing operations Net income Diluted earnings per common share: Income from continuing operations Net income Average shares outstanding (millions): Basic Diluted Cash dividends declared per share of common stock Percentage of revenue: Gross profit R&D SG&A Operating profit $ 3,351 1,602 1,749 488 428 833 17 850 262 588 -588 $ 3,424 1,640 1,784 551 424 809 56 865 251 614 (4) 610 $ 3,272 1,516 1,756 514 435 807 33 840 178 662 -662 $ $ $ $ $ .45 .45 $ $ .43 .42 $ $ .50 .50 $ $ .44 .44 $ $ .42 .42 $ $ .49 .49 1,320 1,341 1,437 1,469 1,327 1,347 $ .10 $ .08 $ .10 52.2% 14.6% 12.8% 24.9% 52.1% 16.1% 12.4% 23.6% 53.7% 15.7% 13.3% 24.7% TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets (Millions of dollars, except share amounts) June 30, 2008 Assets Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowances of ($24), ($27) and ($25) Raw materials Work in process Finished goods Inventories Deferred income taxes June 30, 2007 Mar. 31, 2008 $ 1,317 331 1,811 111 997 543 1,651 641 $ 1,266 2,315 1,897 106 876 442 1,424 1,072 $ 1,450 426 1,669 111 943 524 1,578 659
Slide 5: Prepaid expenses and other current assets 259 246 Total current assets 6,010 8,220 Property, plant and equipment at cost 7,603 7,657 Less accumulated depreciation (3,999) (3,859) Property, plant and equipment, net 3,604 3,798 Long-term investments 766 254 Goodwill 840 792 Acquisition-related intangibles 108 117 Deferred income taxes 626 405 Capitalized software licenses, net 220 259 Overfunded retirement plans 128 79 Other assets 80 96 Total assets $ 12,382 $ 14,020 193 5,975 7,493 (3,908) 3,585 791 838 105 618 225 122 79 $ 12,338 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued expenses and other liabilities Income taxes payable Accrued profit sharing and retirement Total current liabilities Underfunded retirement plans Deferred income taxes Deferred credits and other liabilities Total liabilities Stockholders' equity: Preferred stock, $25 par value. Authorized -- 10,000,000 shares. Participating cumulative preferred. None issued. Common stock, $1 par value. Authorized -- 2,400,000,000 shares. Shares issued: June 30, 2008 -1,739,712,567; June 30, 2007 -1,739,467,307; March 31, 2008 -1,739,660,927 Paid-in capital Retained earnings Less treasury common stock at cost: Shares: June 30, 2008 -- 428,835,142; June 30, 2007 -- 310,382,046; March 31, 2008 -- 416,925,336 Accumulated other comprehensive loss, net of taxes Total stockholders' equity Total liabilities and stockholders' equity $ 677 955 26 102 1,760 187 57 394 2,398 $ 622 1,048 187 98 1,955 115 20 436 2,526 $ 680 871 218 79 1,848 191 60 382 2,481 -- -- -- 1,740 940 20,773 1,739 761 18,511 1,740 926 20,318 (13,138) (9,233) (12,776) (351) 9,857 $ 12,338 (331) (284) 9,984 11,494 $ 12,382 $ 14,020 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows (Millions of dollars) For Three Months Ended June 30, June 30, Mar. 31, 2008 2007 2008 Cash flows from operating activities: Net income Adjustments to reconcile net income to cash provided by operating activities $ 588 $ 610 $ 662
Slide 6: of continuing operations: Loss from discontinued operations Depreciation Stock-based compensation Amortization of acquisition-related intangibles Losses on sales of assets Deferred income taxes Increase (decrease) from changes in: Accounts receivable Inventories Prepaid expenses and other current assets Accounts payable and accrued expenses Income taxes payable Accrued profit sharing and retirement Other Net cash provided by operating activities of continuing operations Cash flows from investing activities: Additions to property, plant and equipment Purchases of short-term investments Sales and maturities of short-term investments Purchases of long-term investments Sales of long-term investments Acquisitions, net of cash acquired Net cash (used in) provided by investing activities of continuing operations Cash flows from financing activities: Payments on loans and long-term debt Dividends paid Sales and other common stock transactions Excess tax benefit from share-based payments Stock repurchases Net cash used in financing activities of continuing operations Effect of exchange rate changes on cash Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period -245 54 10 -(7) (149) (73) (29) 32 (181) 23 7 520 4 256 69 14 -(3) (144) (15) 42 110 (76) 47 (16) 898 -241 54 10 6 (74) 89 (160) (46) (179) 165 (122) (5) 641 (271) -111 (3) -(19) (182) (174) (1,479) 1,529 (6) 3 -(127) (219) (362) 958 (2) 16 -391 -(132) 89 3 (433) (473) 2 (133) (43) (115) 374 56 (742) (470) -301 965 $ 1,266 -(133) 76 13 (874) (918) 8 122 1,328 $ 1,450 1,450 $ 1,317 Certain amounts in prior periods' financial statements have been reclassified to conform to the current presentation. ### Safe Harbor Statement “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as TI or its management “believes,” “expects,” “ nticipates,” “oresees,” “orecasts,” “ stimates” or other words or phrases of similar import. Similarly, statements a f f e herein that describe TI’s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. We urge you to carefully consider the following important factors that could cause actual results to differ materially from the expectations of TI or its management:
Slide 7: q q q q q q 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; Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments; Customer demand that differs from our forecasts; The financial impact of inadequate or excess TI inventory that results from demand that differs from projections; TI's ability to access its bank accounts and lines of credit or otherwise access the capital markets; Product liability or warranty claims, claims based on epidemic or delivery failure or recalls by TI customers for a product containing a TI part; TI’s ability to recruit and retain skilled personnel; and Timely implementation of new manufacturing technologies, installation of manufacturing equipment and the ability to obtain needed third-party foundry and assembly/test subcontract services. q q q q q q q q q q q 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 release are made only as of the date of this release and TI undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances. About Texas Instruments Texas Instruments (NYSE: TXN) helps customers solve problems and develop new electronics that make the world smarter, healthier, safer, greener and more fun. A global semiconductor company, TI innovates through manufacturing, design and sales operations in more than 25 countries. For more information, go to www.ti.com. TI Trademarks: OMAP DLP Other trademarks are the property of their respective owners.