10-QPeriod: Q1 FY2002

TEXAS INSTRUMENTS INC Quarterly Report for Q1 Ended Mar 31, 2002

Filed April 26, 2002For Securities:TXN

Summary

Texas Instruments (TXN) reported a net loss of $38 million ($0.02 per diluted share) for the first quarter of 2002, a significant shift from the $230 million profit ($0.13 per diluted share) in the prior year's first quarter. This decline was primarily driven by a substantial decrease in net revenues, which fell to $1.827 billion from $2.528 billion year-over-year. The company experienced a pronounced downturn in its Semiconductor segment, which saw revenues drop significantly and resulted in an operating loss for the segment. Despite the overall decline, management indicated signs of sequential improvement, with orders increasing and a book-to-bill ratio above 1.0 across segments. Revenue grew modestly from the fourth quarter of 2001, supported by growth in Analog and DSP within the Semiconductor business and positive contributions from Sensors & Controls and Education & Productivity Solutions. The company highlighted efforts in cost control, leading to improved gross and operating margins sequentially, and maintained a strong balance sheet with substantial cash reserves and low debt, alongside positive free cash flow generation.

Key Highlights

  • 1Net loss of $38 million in Q1 2002, a reversal from a $230 million profit in Q1 2001.
  • 2Net revenues decreased by 28% year-over-year to $1.827 billion.
  • 3The Semiconductor segment experienced an operating loss of $27 million, a significant decline from a $304 million profit in the prior year.
  • 4Orders showed sequential improvement, with total orders up 2% year-over-year to $1.905 billion and a book-to-bill ratio above 1.0.
  • 5Gross margin improved to 33.4% from 23.3% sequentially, driven by increased factory utilization and cost controls.
  • 6The company generated $176 million in free cash flow (cash flow from operations minus capital expenditures).
  • 7Adoption of SFAS No. 142 resulted in the cessation of goodwill amortization, impacting reported net income by $28 million in Q1 2001.

Frequently Asked Questions

The primary driver of the year-over-year decline in profitability was a significant decrease in net revenues, particularly within the Semiconductor segment, which also resulted in an operating loss for that segment. Overall net revenues dropped by 28% compared to the first quarter of 2001.

Yes, management noted sequential improvement. Orders increased to $1.905 billion from $1.898 billion in the prior year's first quarter and showed a 18% sequential increase. The book-to-bill ratio for the company and its segments was above 1.0, indicating that orders exceeded shipments. Revenue also grew sequentially from the fourth quarter of 2001.

Texas Instruments adopted SFAS No. 142, which eliminated the amortization of goodwill. This change had no impact on the first quarter of 2002 results as goodwill is now tested for impairment annually. However, for comparison, the first quarter of 2001 results were presented on a pro forma basis excluding goodwill and workforce amortization of $28 million, showing an adjusted net income of $258 million versus the reported $230 million.

For the second quarter of 2002, Texas Instruments expects revenue of approximately $2.0 billion, representing about a 10% sequential growth. The company anticipates an operating margin of 5% (GAAP) to 6% (Pro Forma) and diluted earnings per share (EPS) of $0.05 (GAAP) to $0.06 (Pro Forma).