SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 7, 1994
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TEXAS INSTRUMENTS INCORPORATED
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(Exact name of Registrant as specified in its charter)
Delaware 1-3761
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(State of Incorporation) (Commission File No.)
75-0289970
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(I.R.S. Employer Identification No.)
13500 North Central Expressway
P. O. Box 655474, Dallas, Texas 75265
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code 214-995-2551
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Item 5. Other Events.
- ------------------------
Pages 3 through 25 hereof contain the Registrant's 1993 consolidated
financial statements and related notes to financial statements, Report of
Independent Auditors, summary of selected financial data and supplemental
financial information (including the management discussion and analysis of
financial condition and results of operations). Page 25 hereof includes a
Consent of Independent Auditors.
Item 7. Exhibits.
- --------------------
Designation of
Exhibits in
this Report Description of Exhibit
-------------- -----------------------------------------
11 Computation of primary and fully diluted
earnings per common and common equivalent
share.
12 Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends.
23 Consent of Ernst & Young (see page 25
hereof).
2
TO THE STOCKHOLDERS OF TEXAS INSTRUMENTS:
Strong performance in TI's semiconductor business led the company to one of
the best financial years in its history. Earnings per share doubled from 1992
on a 15 percent increase in revenues. The company set records for revenues,
profits and earnings per share in 1993.
Financial Summary
- -----------------
TI's net revenues for 1993 were $8523 million, compared with $7440 million in
1992. Essentially all of the increase was in semiconductor revenues, with
strength across all major product lines and in all major geographic regions.
Profit from operations was $728 million in 1993, up 73 percent from $420
million in 1992. Higher semiconductor operating profits and higher royalties
accounted for virtually all of the increase. Results for 1993 include a
profit-sharing accrual of $83 million. There was no accrual for profit
sharing in 1992. Net income for the year was $472 million, compared with $247
million in 1992. Earnings per share were $5.03, compared with $2.50 per share
in 1992. Results for the year include royalty revenues of $521 million,
compared with $391 million in 1992. Profit after tax return on assets (PAT
ROA) was 8.1 percent, compared with 4.1 percent in 1992. This represents
substantial progress toward our goal of achieving a sustainable 8-10 percent
PAT ROA to increase shareholder value.
Results Validate Strategies
- ---------------------------
In the last few years, we have taken actions to reposition our businesses in
the marketplace and streamline operations across TI. The improvement in our
financial performance shows that our strategies are working:
- -- About one-half of our semiconductor revenues are from differentiated
products. We believe TI's semiconductor revenues grew faster than the
market in 1993 for the second consecutive year. TI is gaining share in
microprocessors. We are the acknowledged leader in the rapidly growing
digital signal processor market, and we have a strong position in the
market for linear mixed-signal devices. TI's bipolar business is
shifting to advanced system logic, with new differentiated products for
emerging markets in computers, consumer electronics and
telecommunications.
- -- Our defense business is handling a difficult restructuring job
exceptionally well, and continues to maintain stable margins and meet
TI's goal for return on assets. We are continuing to size for a smaller
market, and we are winning new contracts and exploring opportunities for
strategic growth.
- -- Our information technology activity is focused on building a major
business in software productivity tools and applications. The financial
performance of this business in 1993 was below expectations. We
continue to strengthen our product position in client/server software.
We have moderated the planned growth rate for this business to focus on
achieving acceptable profitability.
- -- Our materials and controls business has invested in several
opportunities that could add substantial growth. The TIRIS(TM) radio-
frequency identification system was adopted by Ford in Europe for auto
security. The TIRIS system is an excellent example of applying our
technology in creative ways to open new markets.
- -- We are becoming known as a valued business partner in every region of
the world. We strengthened our position as the number one foreign
supplier to the Japanese semiconductor market in 1993. Our revenues in
the Asia-Pacific
3
region have doubled in the past two years and grew significantly faster
than the market in 1993. In Europe, we are building a strong position
in semiconductors for the telecommunications market based on alliances
with the market leaders.
- -- We have established a mechanism for nurturing potentially breakthrough
opportunities that fall outside our current businesses. We've made
substantial investments to develop the digital micromirror device
(DMD)(TM) technology. We are still assessing the business potential for
this technology, but it could offer a significant opportunity for the
future.
Pursuing Operational Excellence
- -------------------------------
We could not have achieved these results without making significant changes in
the way we operate. Our success has come from the efforts of thousands of
teams of TIers, dedicated to quality and willing to make the changes necessary
to improve processes and satisfy our customers.
We believe there is a strong correlation between commitment to total quality
and improvement in financial measures such as profitability and cash flow.
Our semiconductor business has consistently achieved greater than 90 percent
on-time delivery performance and has reduced manufacturing cycle times by more
than half in the last two years. Customer recognition of these achievements
has resulted in more than 100 quality awards in that time, including the Total
Quality Excellence Award from Ford. The reduction in cycle time and other
operational improvements contributed significantly to the increase in
semiconductor revenues in 1993. In addition, they also have resulted in
improved cash flow and lower inventories relative to revenues. In what we
believe to be a record for the industry, TECH Semiconductor, the joint-venture
facility in Singapore, achieved volume production of four-megabit DRAMs in
December, only three months after initial qualification. Our defense
electronics business, a 1992 winner of the Malcolm Baldrige National Quality
Award, consistently turns in strong financial performance. As part of its
strategy for achieving business excellence, TI Europe has adopted the European
Foundation for Quality Management (EFQM) criteria, which are similar to the
Baldrige criteria and accepted by European customers. This focus on cycle
time and quality has contributed to greater productivity for TI as a whole,
with net revenues per person improving by about 40 percent in the last two
years.
Building for the Future
- -----------------------
In addition to turning in record financial performance, we are also doing the
things needed for the future. In late 1993, we combined our consumer and
peripheral products businesses to create a new operation focused on products
that enhance personal productivity. While this required a pretax charge in
the fourth quarter, we expect the consolidation, when fully implemented, to
result in annual savings of about $25 million through more efficient
operations and combined marketing channels. We will continue to streamline
operations as necessary in all of our businesses.
At the same time, we have added and converted resources to take advantage of
new market opportunities. With higher royalties, we were able to increase
research and development (R&D) investments by $120 million in 1993, to $590
million. We expect to increase these investments to about $700 million in
1994, with most of the increase supporting new semiconductor technologies. We
have also strengthened our patent evaluation and filing process. In the past
three years, TI has received about 1,200 new patents. Several of these are in
technology areas that we believe will be important to the future of the
electronics industry, including video graphics, signal processing, memory
modules, and advanced semiconductor packaging. We believe these new patents
strengthen our intellectual property portfolio for the future.
We also invested $730 million in capital in 1993. We began construction of a
new wafer-fabrication facility in Dallas. The initial phase is expected to
reduce sharply the time required to get new semiconductor products from
research to vol-
4
ume production. Capital expenditures in 1994 are expected to be about $1
billion, primarily for expansion of submicron CMOS semiconductor capacity,
including investments in the new Dallas facility.
New TI Leadership Structure
- ---------------------------
Building on what we have accomplished in the last few years, and to prepare
for the next phase of growth, we established a new leadership structure for
the company in December 1993. We created an Office of the Chief Executive,
and a Strategy Leadership Team composed of TI senior officers. This team will
be the focal point for key decisions in the company. This structure embodies
a management philosophy based on teamwork and partnership. It gives top
managers more time to spend with customers, it promotes faster and better
decisions, and it will help us build a more integrated, global company that
can take full advantage of growth opportunities around the world.
Outlook
- -------
For 1994, we believe world semiconductor demand will grow in line with the
long-term trend of about 15 percent, as the major economies of the world
continue to experience low inflation rates and increased capital spending to
improve productivity. While weakness in the economies of Japan and Germany
will restrain the pace of near-term market growth, the strength of U.S.
electronics and the emergence of new markets in Asia provide sufficient
opportunities to continue steady growth in our semiconductor business.
For the longer term, conservative capacity additions relative to revenues and
continued tight control of semiconductor inventories by end-equipment
manufacturers should lead to greater stability for the semiconductor industry.
This means more orderly growth around the long-term trend line. Such an
environment would provide the opportunity to continue our emphasis on
operational improvements and productivity gains, helping to achieve our goal
for return on assets.
In defense electronics, we expect to see continued market decline in 1994,
with a dampening effect on TI's defense revenues.
Because of actions taken in the last several years, TI today is much more
competitive in world markets. Our priorities for 1994 are to implement the
new leadership and organization changes, to achieve further improvement in
total cycle time and quality, and to continue improving our productivity.
Success in these areas will contribute to achieving our goal of a sustainable
8-10 percent profit after tax return on assets. We believe this level of
performance provides an appropriate return to our shareholders while allowing
us to reinvest in the business, achieve continually higher levels of customer
satisfaction, and build an increasingly productive, rewarding work
environment.
Jerry R. Junkins
Chairman, President and
Chief Executive Officer
Dallas, Texas
January 28, 1994
5
Consolidated Financial Statements
Texas Instruments Incorporated and Subsidiaries
(In millions of dollars, except per-share amounts.)
For the years ended December 31
-------------------------------
Income 1993 1992 1991
- ---------------------------------------------------------------------------
Net revenues .............................. $8,523 $7,440 $6,784
------ ------ ------
Operating costs and expenses:
Cost of revenues ......................... 6,274 5,720 5,662
General, administrative and marketing .... 1,247 1,170 1,277
Employees' retirement and profit
sharing plans .......................... 274 130 94
------ ------ ------
Total .................................. 7,795 7,020 7,033
------ ------ ------
Profit (loss) from operations ............. 728 420 (249)
Other income (expense) net ................ 15 -- (14)
Interest on loans ......................... 47 51 41
------ ------ ------
Income (loss) before provision for
income taxes and cumulative effect of
accounting changes ....................... 696 369 (304)
Provision for income taxes ................ 220 122 105
------ ------ ------
Income (loss) before cumulative effect
of accounting changes .................... 476 247 (409)
Cumulative effect of accounting changes ... (4) -- --
------ ------ ------
Net income (loss) ......................... $ 472 $ 247 $ (409)
====== ====== ======
Net income (loss), less dividends
accrued on preferred stock ............... $ 452 $ 210 $ (443)
====== ====== ======
Earnings (loss) per common and common
equivalent share:
Income (loss) before cumulative effect
of accounting changes .................. $ 5.07 $ 2.50 $(5.40)
Cumulative effect of accounting changes .. (0.04) -- --
------ ------ ------
Net income (loss) ........................ $ 5.03 $ 2.50 $(5.40)
====== ====== ======
See accompanying notes.
6
December 31
------------------
Balance Sheet 1993 1992
- ----------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents ................................... $ 404 $ 356
Short-term investments ...................................... 484 503
Accounts receivable, less allowance for losses of
$42 million in 1993 and $34 million in 1992 ............... 1,218 975
Inventories (net of progress billings) ...................... 822 734
Prepaid expenses ............................................ 55 53
Deferred income taxes ....................................... 331 5
------ ------
Total current assets ...................................... 3,314 2,626
------ ------
Property, plant and equipment at cost ........................ 4,620 4,434
Less accumulated depreciation ............................... (2,417) (2,301)
------ ------
Property, plant and equipment (net) ....................... 2,203 2,133
------ ------
Deferred income taxes ........................................ 237 152
Other assets ................................................. 239 274
------ ------
Total assets ................................................. $5,993 $5,185
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt ............ $ 211 $ 54
Accounts payable and accrued expenses ....................... 1,495 1,460
Income taxes payable ........................................ 120 93
Accrued retirement and profit sharing contributions ......... 158 36
Dividends payable ........................................... 17 22
------ ------
Total current liabilities ................................. 2,001 1,665
------ ------
Long-term debt ............................................... 694 909
Accrued retirement costs ..................................... 739 324
Deferred credits and other liabilities ....................... 244 340
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000
shares.
Market auction preferred (stated at liquidation value).
Shares issued and outstanding: 1992 - 750 ............... -- 75
Money market preferred (stated at liquidation value).
Shares issued and outstanding: 1992 - 746 ............... -- 75
Series A conversion preferred, stated at par value
(liquidation value: 1992 - $324 million). Shares issued
and outstanding: 1992 - 2,778,500 ....................... -- 69
Participating cumulative preferred. None issued .......... -- --
Common stock, $1 par value. Authorized - 300,000,000
shares. Shares issued: 1993 - 90,919,314;
1992 - 82,703,207 ......................................... 91 83
Paid-in capital ............................................. 932 770
Retained earnings ........................................... 1,307 916
Less treasury common stock at cost.
Shares: 1993 - 102,522; 1992 - 103,863 .................. (5) (4)
Other ....................................................... (10) (37)
------ ------
Total stockholders' equity ............................... 2,315 1,947
------ ------
Total liabilities and stockholders' equity ................... $5,993 $5,185
====== ======
See accompanying notes.
7
Consolidated Financial Statements
Texas Instruments Incorporated and Subsidiaries
(In millions of dollars, except per-share amounts.)
For the years ended December 31
-------------------------------
Cash Flows 1993 1992 1991
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) before cumulative
effect of accounting changes ................ $ 476 $ 247 $ (409)
Depreciation .................................. 617 610 590
Deferred income taxes ......................... (59) (93) 42
Net currency exchange losses .................. 4 3 9
(Increase) decrease in working capital
(excluding cash and cash equivalents,
short-term investments, deferred income
taxes, loans payable and current
portion long-term debt, and dividends
payable):
Accounts receivable ........................ (258) (111) 11
Inventories ................................ (88) 50 55
Prepaid expenses ........................... (3) 1 1
Accounts payable and accrued expenses ...... 37 (16) 53
Income taxes payable ....................... 27 52 10
Accrued retirement and profit sharing
contributions ............................ 94 12 19
Increase in noncurrent accrued retirement
costs ....................................... 21 39 91
Other ......................................... 66 7 (55)
------ ------ ------
Net cash provided by operating activities ...... 934 801 417
Cash flows from investing activities:
Additions to property, plant and equipment .... (730) (429) (504)
(Increase) decrease in short-term investments.. 19 (354) (140)
Proceeds from sales of businesses ............. -- 48 111
------ ------ ------
Net cash used in investing activities .......... (711) (735) (533)
Cash flows from financing activities:
Additions to loans payable .................... 35 92 79
Payments on loans payable ..................... (72) (61) (84)
Additions to long-term debt ................... 14 150 356
Payments on long-term debt .................... (15) (117) (173)
Proceeds from issuance of preferred stock ..... -- -- 314
Redemptions of auction-rate preferred stock ... (150) (146) (225)
Dividends paid on common and preferred stock .. (86) (98) (90)
Sales and other common stock transactions ..... 100 25 11
Other ......................................... 6 (2) (15)
------ ------ ------
Net cash provided by (used in) financing
activities .................................... (168) (157) 173
Effect of exchange rate changes on cash ........ (7) (5) (8)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents ................................... 48 (96) 49
Cash and cash equivalents at beginning of year.. 356 452 403
------ ------ ------
Cash and cash equivalents at end of year ....... $ 404 $ 356 $ 452
====== ====== ======
See accompanying notes.
8
Market Auction/ Series A
Money Market* Conversion Treasury
Preferred Preferred Common Paid-In Retained Common
Stockholders' Equity Stock Stock Stock Capital Earnings Stock Other
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 ........... $ 521 $ -- $ 82 $ 491 $1,269 $ (5) $ --
1991
- ----
Net loss ........................... (409)
Dividends declared on:
Market auction preferred stock ... (14)
Money market preferred stock* .... (12)
Series A conversion preferred
stock ($3.31 per share) ........ (9)
Common stock ($.72 per share) .... (59)
Redemptions of auction-rate
preferred stock .................. (225)
Series A conversion preferred
stock issued ..................... 69 245
Common stock issued on exercise
of stock options ................. 10 3
Other stock transactions, net ...... (2)
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1991 ........... 296 69 82 746 766 (4) --
1992
- ----
Net income ......................... 247
Dividends declared on:
Market auction preferred stock ... (8)
Money market preferred stock ..... (4)
Series A conversion preferred
stock ($9.04 per share) ........ (25)
Common stock ($.72 per share) .... (60)
Redemptions of auction-rate
preferred stock .................. (146)
Common stock issued on exercise
of stock options ................. 1 15 3
Other stock transactions, net ...... 9 (3)
Pension liability adjustment ....... (37)
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1992 ........... 150 69 83 770 916 (4) (37)
1993
- ----
Net income ......................... 472
Dividends declared on:
Market auction preferred stock ... (2)
Money market preferred stock ..... (2)
Series A conversion preferred
stock ($5.45 per share) ........ (14)
Common stock ($.72 per share) .... (63)
Redemptions of auction-rate
preferred stock .................. (150)
Redemptions of Series A conversion
preferred stock .................. (69) 6 63
Common stock issued:
To profit sharing trusts ......... 13
On exercise of stock options ..... 2 67 2
Other stock transactions, net ...... 19 (3)
Pension liability adjustment ....... 27
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1993 ........... $ -- $ -- $ 91 $ 932 $1,307 $ (5) $ (10)
====== ====== ====== ====== ====== ====== ======
* Convertible money market preferred stock prior to August 9, 1991.
See accompanying notes.
9
Notes to Financial Statements
Accounting Policies and Practices
- ------------------------------------------------------------------------------
Effective January 1, 1993, the company adopted two new accounting standards:
SFAS No. 106, which requires the accrual of expected retiree health care
benefit costs during the employees' working careers, and SFAS No. 109, which
requires increased recording of deferred income tax assets. This resulted in
a charge of $294 million ($3.14 per share) for SFAS No. 106 and a credit of
$290 million ($3.10 per share) for SFAS No. 109, for the cumulative effect of
the accounting changes.
The consolidated financial statements include the accounts of all
subsidiaries. Intercompany balances and transactions have been eliminated.
The U.S. dollar is the functional currency for financial reporting. With
regard to accounts recorded in currencies other than U.S. dollars, current
assets (except inventories), deferred income taxes, other assets, current
liabilities and long-term liabilities are remeasured at exchange rates in
effect at year end. Inventories, property, plant and equipment and
depreciation thereon are remeasured at historic exchange rates. Revenue and
expense accounts other than depreciation for each month are remeasured at the
appropriate month-end rate of exchange. Net currency exchange gains and
losses from remeasurement and currency exchange contracts to hedge exposure
are charged or credited to income currently. Gains and losses from currency
and interest exchange contracts to hedge specific transactions are included in
the measurement of the related transactions.
Inventories are stated at the lower of cost, current replacement cost or
estimated realizable value. Cost is generally computed on a currently
adjusted standard (which approximates current average costs) or average basis
except for the cost of certain inventories of metals and metal products, which
are computed on the LIFO basis.
For the years 1993, 1992 and 1991, royalty revenue of $521 million, $391
million and $256 million is included in net revenues. Royalty revenue is
recognized by the company upon fulfillment of its contractual obligations and
determination of a fixed royalty amount, or, in the case of ongoing royalties,
upon sale by the licensee of royalty-bearing products, as estimated by the
company.
Substantially all depreciation is computed by either the declining-
balance method (primarily 150 percent declining method) or the sum-of-the-
years-digits method. Fully depreciated assets are written off against
accumulated depreciation.
Earnings (loss) per common and common equivalent share are based on
average common and common equivalent shares outstanding (93,605,749 shares,
85,310,690 shares and 81,970,372 shares for 1993, 1992 and 1991). Shares
issuable upon exercise of dilutive stock options and upon conversion of
dilutive conversion preferred stock and convertible debentures are included in
average common and common equivalent shares outstanding. In computing per-
share earnings, "net income, less dividends accrued on preferred stock" is
increased by $19 million and $4 million in 1993 and 1992 for dividends and
interest (net of tax and profit sharing effect) on the conversion preferred
stock and convertible debentures considered dilutive common stock equivalents.
Short-Term Investments
- ------------------------------------------------------------------------------
Short-term investments consist primarily of commercial paper, notes and short-
term U.S. government securities with original maturities beyond three months
stated at cost, which approximates market value. Similar items with original
maturities of three months or less are considered cash equivalents.
Inventories
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
1993 1992
------ ------
Raw materials and purchased parts .................... $ 244 $ 251
Work in process ...................................... 557 576
Finished goods ....................................... 250 197
------ ------
Inventories before progress billings ................. 1,051 1,024
Less progress billings ............................... (229) (290)
------ ------
Inventories (net of progress billings) ............... $ 822 $ 734
====== ======
Approximately 34% and 43% of the December 31, 1993 and 1992, inventories
before progress billings related to long-term contracts.
Revenues under long-term fixed price and fixed-price incentive contracts
are recognized as deliveries are made or as performance targets are achieved.
Revenues under cost-reimbursement contracts are recorded as costs are incurred
and include estimated earned fees.
Inventories related to long-term contracts are stated at actual production
costs, including manufacturing overhead and special tooling and engineering
costs, reduced by amounts identified with revenues recognized on units
delivered or with progress completed. Such inventories are reduced by
charging any amounts in excess of estimated realizable value to cost of
revenues. The costs attributed to units delivered under long-term contracts
are based on the estimated average cost of all units to be produced under
existing firm orders and are determined under the learning curve concept,
which anticipates a predictable decrease in unit costs as tasks and production
techniques become more efficient through repetition. Production costs
included in inventories in excess of the estimated cost of in-process
inventories (on the basis of estimated average cost of all units to be
produced) were not material.
The replacement cost of LIFO inventories exceeded the carrying cost, which
was immaterial, by approximately $29 million at December 31, 1993, and $30
million at December 31, 1992.
10
To secure access to additional semiconductor plant capacity, TI entered
into three joint ventures formed to construct and operate semiconductor
manufacturing capacity. Upon formation of the ventures TI contributed
technology and cash to acquire minority interests and entered into long-term
inventory purchase commitments with each joint venture. Under the agreements,
TI purchases the output of the ventures at prices based upon percentage
discounts from TI's average selling prices. Certain venturers have the right
to buy a portion of the output from TI. Under certain circumstances, TI may
increase its ownership and potentially acquire a majority interest in the
ventures. Under the ventures' financing arrangements, the venturers have
provided certain debt and other guarantees. At December 31, 1993 and 1992, TI
was contingently liable for an aggregate of $43 million and $61 million of
such guarantees. Inventory purchases from the ventures aggregated $356
million and $66 million in 1993 and 1992. Receivables from and payables to
the ventures were $6 million and $45 million at December 31, 1993, and $4
million and $15 million at December 31, 1992. Purchases prior to 1992 were
insignificant. TI purchases are expected to increase in 1994.
Property, Plant and Equipment at Cost
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
Depreciable Lives 1993 1992
----------------- ------ ------
Land ............................ $ 70 $ 69
Buildings and improvements ...... 5-40 years 1,691 1,695
Machinery and equipment ......... 3-10 years 2,859 2,670
------ ------
Total ........................... $4,620 $4,434
====== ======
Interest incurred on loans in 1993, 1992 and 1991 was $55 million, $57
million and $59 million. Of these amounts, $8 million in 1993, $6 million in
1992 and $18 million in 1991 were capitalized.
Authorizations for property, plant and equipment expenditures in future
years were approximately $603 million at December 31, 1993, and $302 million
at December 31, 1992.
Accounts Payable and Accrued Expenses
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
1993 1992
------ ------
Accounts payable ...................................... $ 543 $ 459
Advance payments from commercial
and defense contract customers ...................... 130 152
Accrued salaries, wages, severance
and vacation pay .................................... 291 273
Other accrued expenses and liabilities ................ 531 576
------ ------
Total ................................................. $1,495 $1,460
====== ======
Long-Term Debt and Lines of Credit
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
1993 1992
------ ------
2.75% convertible subordinated
debentures due 2002 .................................. $ 200 $ 200
9.0% notes due 1999 ................................... 150 150
9.0% notes due 2001 ................................... 150 150
9.25% notes due 2003 .................................. 150 150
8.75% notes due 2007 .................................. 150 150
5.56% to 6.10% Italian lira mortgage notes
(53% swapped for 1.60% U.S. dollar obligation) ....... 95 106
Other ................................................. 10 19
------ ------
905 925
Less current portion long-term debt ................... 211 16
------ ------
Long-term debt ........................................ $ 694 $ 909
====== ======
The convertible subordinated debentures may be redeemed at the company's
option at specified prices, and may be redeemed at the holder's option at par
during a 30-day period beginning in September 1994. The debentures are
convertible at the holder's option into an aggregate 2,413,273 shares of TI
common stock at a common stock conversion price of $82.875 per share.
The coupon rates for the notes due 1999, 2001 and 2003 have been swapped
for commercial paper-based variable rates through March 1995 for an effective
interest rate of approximately 6.4% and 6.5% as of December 31, 1993 and 1992.
The 9.0% notes due 1999 may be redeemed at par, at the company's option,
beginning in July 1996. The Italian lira mortgage notes, and related swaps,
are due in installments through 2003. The mortgage notes are collateralized
by real estate and equipment.
Interest paid on loans (net of amounts capitalized as a component of
construction costs) was $54 million in 1993, $51 million in 1992 and $33
million in 1991.
Aggregate maturities of long-term debt due during the four years
subsequent to December 31, 1994, are as follows:
Millions of Dollars
-------------------
1995 ................................................. $ 11
1996 ................................................. 13
1997 ................................................. 13
1998 ................................................. 14
At December 31, 1993 and 1992, the fair value of long-term debt, based on
current interest rates, was approximately $998 million and $965 million,
compared with the carrying amount of $905 million and $925 million.
Unused lines of credit for short-term financing were approximately $569
million at December 31, 1993 and $595 million at December 31, 1992. Of these
amounts, $470 million and $477 million were available to support commercial
paper borrowings.
11
Notes to Financial Statements
Financial Instruments and Risk Concentration
- -----------------------------------------------------------------------------
Financial instruments: In addition to the swaps discussed in the preceding
note, the company has forward currency exchange contracts outstanding totaling
$239 million at December 31, 1993 and 1992, to hedge exposure and transactions
denominated in European and East Asian currencies. At December 31, 1993 and
1992, the settlement values of these swaps and forward contracts, based on
current market rates, were not significant. These financial instruments are
designed to minimize exchange rate risks and financing costs in the regular
course of business.
The company has an agreement to sell, on a revolving basis, up to $175
million of an undivided percentage ownership interest in a designated pool of
accounts receivable, with limited recourse. Accounts receivable are shown net
of $175 million at December 31, 1993 and 1992, representing receivables sold.
The comparable amount for December 31, 1991 is $175 million. The related
discount expense, which varies with commercial paper rates, is included in
other income (expense) net. The agreement expires November 1995 and may be
terminated earlier by either party under certain circumstances.
Risk concentration: Financial instruments which potentially subject the
company to concentrations of credit risk are primarily cash investments and
accounts receivable. The company places its cash investments in investment
grade, short-term debt instruments and limits the amount of credit exposure to
any one commercial issuer. Concentrations of credit risk with respect to the
receivables are limited due to the large number of customers in the company s
customer base, and their dispersion across different industries and geographic
areas. The company maintains an allowance for losses based upon the expected
collectibility of all accounts receivable, including receivables sold.
Stockholders' Equity
- ------------------------------------------------------------------------------
The company is authorized to issue 10,000,000 shares of preferred stock. The
following series of preferred stock have been issued:
Market auction preferred stock: On August 9, 1991, all outstanding shares
were exchanged on a one-for-one basis for new market auction preferred stock
with a higher maximum dividend rate. In November 1993, all of the remaining
$75 million of these shares were redeemed by the company at their
liquidation value of $100,000 per share. Dividends, which were cumulative,
were set every 49 days through auction procedures. The dividend rates (per
annum) averaged 3.2%, 5.3% and 6.5% in 1993, 1992 and 1991. Dividends
declared per share averaged $2,564, $5,239 and $6,230 in 1993, 1992 and 1991.
Money market preferred stock: The shares outstanding prior to August 9,
1991 were convertible into TI common stock; on August 9, 1991, all such shares
were exchanged on a one-for-one basis for new non-convertible money market
preferred stock with a higher maximum dividend rate. In October 1993, all of
the remaining $74.6 million of these shares were redeemed by the company at
their liquidation value of $100,000 per share. Dividends, which were
cumulative, were set every 49 days through auction procedures. The dividend
rates (per annum) averaged 3.4%, 5.4% and 6.6% in 1993, 1992 and 1991.
Dividends declared per share averaged $2,729, $5,138 and $6,520 in 1993, 1992
and 1991.
Series A conversion preferred stock: Each Series A conversion preferred
share was represented by four depositary shares, for a total of 11,114,000
depositary shares. The depositary shares were redeemable, at the company's
option, in exchange for TI common stock having a market value equal to a
predetermined call price specified by the date of redemption. In a series of
three redemptions of approximately equal numbers of shares, the company
redeemed all of its Series A Conversion Preferred Stock and related depositary
shares during 1993. In exchange for the aggregate 11,114,000 depositary
shares redeemed, the company issued the following number of shares of TI
common stock: 2,412,829 on June 25; 2,025,024 on September 10; and 1,828,665
on September 27.
Each outstanding share of the company's common stock carries a stock
purchase right. Under certain circumstances, each right may be exercised to
purchase one one-hundredth of a share of the company's participating
cumulative preferred stock for $200. Under certain circumstances following
the acquisition of 20% or more of the company's outstanding common stock by an
acquiring person (as defined in the rights agreement), each right (other than
rights held by an acquiring person) may be exercised to purchase common stock
of the company or a successor company with a market value of twice the $200
exercise price. The rights, which are redeemable by the company at 1 cent per
right, expire in June 1998.
Research and Development Expense
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
Research and development expense ........... $ 590 $ 470 $ 527
Other Income (Expense) Net
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
Interest income ........................... $ 31 $ 30 $ 28
Other income (expense) net ................ (16) (30) (42)
------ ------ ------
Total ..................................... $ 15 $ -- $ (14)
====== ====== ======
12
Stock Options
- ------------------------------------------------------------------------------
The company has stock options outstanding to participants under the Texas
Instruments Long-Term Incentive Plan, approved by stockholders on April 15,
1993. Options are also outstanding under the 1974, 1984 and 1988 Stock Option
Plans; however, no further options may be granted under these plans. Under
all these stockholder-approved plans, the exercise price per share may not be
less than 100 percent of the fair market value on the date of the grant.
Options granted become exercisable in such amounts, at such intervals and
subject to such terms and conditions as determined by the compensation
committee of the board of directors.
Under the Long-Term Incentive Plan, the company may grant stock options,
including incentive stock options; restricted stock and restricted stock
units; performance units; and other stock-based awards, including stock
appreciation rights. The plan provides for the issuance of 4,000,000 shares
of the company's common stock; in addition, if any option under the 1974, 1984
or 1988 Stock Option Plans terminates, then any unissued shares subject to the
terminated option become available for granting awards under the plan. No
more than 1,000,000 shares of common stock may be awarded as restricted stock,
restricted stock units or other stock-based awards under the plan.
The company also has stock options outstanding under an Employees Stock
Option Purchase Plan approved by stockholders in 1988. The plan provides for
options to be offered to all eligible employees in amounts based on a
percentage of the employee's prior year's compensation. If the optionee
authorizes and does not cancel payroll deductions which, with interest, will
be equal to or greater than the purchase price, options granted become
exercisable 14 months, and expire not more than 27 months, from date of grant.
Stock option transactions during 1993, 1992 and 1991 were as follows:
Long-Term
Incentive Employees
and Stock Stock Option Option
Option Purchase Price Range
Plans Plan Per Share
--------- --------- ---------------
Balance, Dec. 31, 1990 ............ 3,792,718 842,893 $25.34 - $60.57
Granted .......................... 867,500 690,532*
Terminated ....................... 109,315 547,871*
Exercised** ...................... 228,608 151,763 $25.34 - $47.63
--------- ---------
Balance, Dec. 31, 1991 ............ 4,322,295 833,791 $25.34 - $60.57
Granted .......................... 834,450 591,300*
Terminated ....................... 93,859 404,427*
Exercised** ...................... 255,409 218,441 $25.34 - $44.75
--------- ---------
Balance, Dec. 31, 1992 ............ 4,807,477 802,223 $30.73 - $60.57
Granted .......................... 860,000 438,803*
Terminated ....................... 159,150 85,734*
Exercised** ...................... 1,056,079 636,986 $32.82 - $54.61
--------- ---------
Balance, Dec. 31, 1993 ............ 4,452,248 518,306 $30.73 - $65.69
========= =========
Exercisable at Dec. 31, 1992 ...... 1,787,563 246,686
Exercisable at Dec. 31, 1993 ...... 751,920 106,105
* Excludes options offered but not accepted.
** Includes previously unissued shares and treasury shares of 1,636,199 and
56,866; 398,288 and 75,562; and 317,814 and 62,557; for 1993, 1992 and
1991.
At year-end 1993, 3,461,225 shares were available for future grants under
the Long-Term Incentive Plan and 2,051,062 shares under the Employees Stock
Option Purchase Plan approved in 1988. As of year-end 1993, 8,159,647 shares
were reserved for issuance under the company's stock option and incentive
plans and 2,569,368 shares were reserved for issuance under the Employees
Stock Option Purchase Plan approved in 1988.
The company acquires its common stock from time to time for use in
connection with exercise of stock options and other stock transactions.
Treasury shares acquired in 1993, 1992 and 1991 were 55,525 shares, 77,339
shares and 61,006 shares. Previously unissued common shares issued under the
Annual Incentive Plan in 1993, 1992 and 1991 were 103,926 shares, 68,860
shares and 36,389 shares.
Profit Sharing and Retirement Plans
- -----------------------------------------------------------------------------
The company provides various incentive plans for employees, including general
profit sharing and savings programs as well as an annual incentive plan for
key employees. The company also provides pension and retiree health care
benefit plans in the U.S. and pension plans in certain non-U.S. locations.
Profit sharing: Profit sharing expense was $83 million in 1993. There
was no profit sharing expense in 1992 or 1991. Under the plans, unless
otherwise provided by local law, the company and certain of its subsidiaries
contribute a portion
13
Notes to Financial Statements
of their net profits according to certain formulas, but not to exceed the
lesser of 25% of consolidated income (as defined) before profit sharing and
income taxes or 15% of the compensation of eligible participants. Unless
otherwise provided by local law, such contributions are invested in TI common
stock.
Except in the event of company contributions in stock, investments in TI
common stock are made by the trustees through purchases of outstanding shares
or through purchases of shares offered from time to time by the company. The
board of directors has authorized the issuance of previously unissued shares
for purposes of the plans; 712,404 of such shares were available for future
issuance at December 31, 1993.
The trustees of the profit sharing plans purchased 626,670 outstanding
shares of TI common stock in 1993 (105,688 shares in 1992 and 310,256 shares
in 1991) and 209,464 previously unissued shares in 1993 (none in 1992 and
1991).
Savings program: The company provides a matched savings program whereby
U.S. employees' contributions of up to 4% of their salary are matched by the
company at the rate of 50 cents per dollar. Contributions are subject to
statutory limitations. The contributions may be invested in several
investment funds including TI common stock. The company's expense under this
program was $21 million in 1993, $20 million in 1992 and $22 million in 1991.
U.S. pension plan: The company has a defined benefit plan covering most
U.S. employees with benefits based on years of service and employee's
compensation. The plan is a career-average-pay plan which has been amended
periodically in the past to produce approximately the same results as a final-
pay type plan. The board of directors of the company has expressed an intent
to make such amendments in the future, circumstances permitting, and the
expected effects of such amendments have been considered in calculating U.S.
pension expense. The company's funding policy is to contribute to the plan at
least the minimum amount required by ERISA. Plan assets consist primarily of
common stock, U.S. government obligations, commercial paper and real estate.
Pension expense of the U.S. plan includes the following components:
Millions of Dollars
--------------------------------
1993 1992 1991
------ ------ ------
Service cost - benefits earned
during the period ...................... $ 59 $ 58 $ 51
Interest cost on projected benefit
obligation ............................. 72 70 69
Return on plan assets
Actual return .......................... (99) (45) (167)
Deferral ............................... 44 (10) 97
Net amortization ........................ (2) (5) (11)
------ ------ ------
U.S. pension expense .................... $ 74 $ 68 $ 39
====== ====== ======
The funded status of the U.S. plan was as follows:
Millions of Dollars
-------------------
1993 1992
------- ------
Actuarial present value at Dec. 31 of:
Vested benefit obligation .................... $ (655) $ (459)
======= ======
Accumulated benefit obligation ............... $ (717) $ (576)
======= ======
Projected benefit obligation ................. $(1,026) $ (937)
Plan assets at fair value ..................... 783 691
------- ------
Projected benefit obligation in excess of
plan assets .................................. (243) (246)
Unrecognized net asset from initial
application of SFAS 87 ....................... (90) (103)
Unrecognized net loss ......................... 43 80
Unrecognized prior service cost ............... 46 50
------- ------
Accrued pension at Dec. 31 .................... (244) (219)
Less current portion .......................... 40 30
------- ------
Accrued U.S. pension costs .................... $ (204) $ (189)
======= ======
The projected benefit obligations for 1993 and 1992 were determined using
assumed discount rates of 7.0% and 8.0% and assumed average long-term pay
progression rates of 4.25% and 6.7%. The assumed long-term rate of return
on plan assets was 9.0%.
Non-U.S. pension plans: Retirement coverage for non-U.S. employees of the
company is provided, to the extent deemed appropriate, through separate plans.
Retirement benefits are based on years of service and employee's compensation,
generally during a fixed number of years immediately prior to retirement.
Funding policies are based on local statutes. Plan assets consist primarily
of common stock, government obligations and corporate bonds.
Pension expense of the non-U.S. plans includes the following components:
Millions of Dollars
-------------------------------
1993 1992 1991
------ ------ ------
Service cost - benefits earned
during the period ...................... $ 44 $ 38 $ 31
Interest cost on projected benefit
obligations ............................ 28 23 18
Return on plan assets
Actual return .......................... (50) 1 (30)
Deferral ............................... 25 (24) 13
Net amortization ........................ 8 4 1
------ ------ ------
Non-U.S. pension expense ................ $ 55 $ 42 $ 33
====== ====== ======
14
The funded status of the non-U.S. plans was as follows:
Millions of Dollars
---------------------
1993 1992
------ ------
Actuarial present value at Sept. 30 of:
Vested benefit obligations .................. $ (365) $ (307)
====== ======
Accumulated benefit obligations ............. $ (429) $ (366)
====== ======
Projected benefit obligations ............... $ (621) $ (465)
Plan assets at fair value .................... 342 264
------ ------
Projected benefit obligations in excess of
plan assets ................................. (279) (201)
Unrecognized net liabilities from initial
application of SFAS 87 ...................... 25 27
Unrecognized net loss ........................ 157 87
Unrecognized prior service cost .............. 10 12
------ ------
Accrued non-U.S. pension at Sept. 30 ......... (87) (75)
Additional minimum liability ................. (24) (47)
Adjustments from Sept. 30 to Dec. 31 ......... 2 1
Less prepaid pension costs at Dec. 31 ........ 18 19
------ ------
Accrued pension at Dec. 31 ................... (127) (140)
Less current portion ......................... 7 5
------ ------
Accrued non-U.S. pension costs ............... $ (120) $ (135)
====== ======
The range of assumptions used for the non-U.S. plans reflects the
different economic environments within the various countries. The projected
benefit obligations were determined using a range of assumed discount rates of
4.75% to 9.0% in 1993 and 5.75% to 9.0% in 1992 and a range of assumed average
long-term pay progression rates of 4.0% to 7.0% in 1993 and 4.5% to 7.0% in
1992. The range of assumed long-term rates of return on plan assets was 8.0%
to 10.0%. Accrued pension at December 31 includes approximately $79 million
in 1993 and 1992 for two non-U.S. plans that are not funded. Pension
accounting rules require recognition in the balance sheet of an additional
minimum pension liability equal to the excess of the accumulated benefit
obligation over the value of the plan assets. A corresponding amount is
recognized as an intangible asset, not to exceed the amount of unrecognized
prior service cost, with the balance recorded as a reduction of stockholders'
equity. As of December 31, 1993 and 1992, the company has recorded an
additional non-U.S. minimum pension liability of $24 million and $47 million
and an equity reduction of $10 million and $37 million.
Retiree health care benefit plan: The company's U.S. employees are
currently eligible to receive, during retirement, specified company-paid
medical benefits. The plan is contributory and premiums are adjusted
annually. For employees retiring on or after January 5, 1993, the company has
specified a maximum annual amount per retiree, based on years of service, that
it will pay toward retiree medical premiums. For employees who retired prior
to that date, the company maintains a consistent level of cost sharing between
the company and the retiree. The company is pre-funding the plan obligation
in amounts determined at the discretion of management. Plan assets consist
primarily of common stock, U.S. government obligations, commercial paper, and
state and local government obligations.
Effective January 1, 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
the accrual of expected retiree health care benefit costs during the
employees' working careers, instead of when the claims are incurred. The
company recorded an accumulated postretirement benefit obligation of $454
million and a related deferred income tax asset of $160 million, which
resulted in a $294 million charge ($3.14 per share) for the cumulative effect
of the accounting change. Retiree health care benefit expense in 1992 and
1991 was computed on a claims-incurred basis.
Expense of the retiree health care benefit plan includes the following
components:
Millions of Dollars
-------------------
1993
------
Service cost - benefits earned
during the period ............................... $ 6
Interest cost on accumulated postretirement
benefit obligation .............................. 35
Return on plan assets
Actual return ................................... (1)
Deferral ........................................ 1
------
Retiree health care benefit expense .............. $ 41
======
The funded status of the plan was as follows:
Millions of Dollars
-------------------
1993
------
Actuarial present value at Dec. 31 of accumulated
postretirement benefit obligation:
Retirees ........................................ $ (396)
Fully eligible employees ........................ (14)
Other employees ................................. (117)
------
(527)
------
Plan assets at fair value ........................ 8
------
Accumulated postretirement benefit obligation
in excess of plan assets ........................ (519)
Unrecognized net loss ............................ 63
------
Accrued at Dec. 31 ............................... (456)
Less current portion ............................. 41
------
Accrued retiree health care benefit costs ........ $ (415)
======
Retiree health care benefit amounts were determined using health care cost
trend rates of 11.0% for 1994 decreasing to 6.0% by 1999, and an assumed
discount rate of 7.0%.
15
Notes to Financial Statements
Increasing the health care cost trend rates by 1% would have increased the
accumulated postretirement benefit obligation at December 31, 1993 by $39
million and 1993 plan expense by $5 million. A trust holding a portion of the
plan assets is subject to federal income taxes at a 39.6% rate. The assumed
long-term rate of return on plan assets, after taxes, was 7.3%. Retiree
health care benefit expense was $24 million in 1992 and $21 million in 1991.
Employment-reduction programs: During 1991, the company implemented
special voluntary and involuntary employment-reduction programs and as a
result incurred pretax charges of $130 million in the second quarter, $55
million in the third quarter and $45 million in the fourth quarter of that
year. The company recognized a $25 million pretax gain from the settlement of
the related pension obligation in the fourth quarter of 1991.
Industry Segment and Geographic Area Operations
- -----------------------------------------------------------------------------
The company is engaged in the development, manufacture and sale of a variety
of products in the electrical and electronics industry for industrial,
government and consumer markets. These products consist of components
(semiconductors, such as integrated circuits, discrete devices and
subassemblies, and electrical and electronic control devices); defense
electronics (such as radar systems, navigation systems, infrared surveillance
and fire control systems, defense suppression missiles, missile guidance and
control systems, and electronic warfare systems); and digital products (such
as software productivity tools, integrated enterprise information solutions,
notebook computers, printers, electronic calculators and learning aids, and
custom manufacturing services). In fourth quarter 1992, the company sold its
commercial multiuser minicomputer systems and service operations. In October
1991, the sale of substantially all the company's industrial automation and
control systems business was completed. Both of these operations were part of
the digital products segment. The company also produces metallurgical
materials (including clad metals, precision-engineered parts and electronic
connectors).
The company's business is based principally on its broad semiconductor
technology and application of this technology to selected electronic end-
equipment markets.
Industry segment and geographic area profit (loss) is not equivalent to
income (loss) before provision for income taxes and cumulative effect of
accounting changes due to exclusion of general corporate expenses, net
interest, currency exchange gains and losses, and other items along with
elimination of unrealized profit in assets. Profit sharing expense is
allocated to segment results based on payroll costs. Royalty revenue from
patent license agreements is included in the U.S. geographic net revenues and
(except for royalty revenue from microcomputer system patent license
agreements, which is included in the digital products segment) is principally
included in the components segment.
Identifiable assets are those associated with segment or geographic area
operations, excluding unallocated cash and short-term investments, internal
company receivables and deferred income taxes. Generally, revenues between
industry segments and between geographic areas are based on prevailing market
prices or an approximation thereof.
Industry Segment Net Revenues
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
Components
Trade ................................ $5,091 $3,982 $3,421
Intersegment ......................... 66 47 49
------ ------ ------
5,157 4,029 3,470
------ ------ ------
Defense Electronics
Trade ................................ 1,842 1,990 1,933
Intersegment ......................... 14 14 17
------ ------ ------
1,856 2,004 1,950
------ ------ ------
Digital Products
Trade ................................ 1,454 1,345 1,306
Intersegment ......................... 4 5 22
------ ------ ------
1,458 1,350 1,328
------ ------ ------
Metallurgical Materials
Trade ................................ 126 116 121
Intersegment ......................... 19 22 22
------ ------ ------
145 138 143
------ ------ ------
Eliminations and other ................ (93) (81) (107)
------ ------ ------
Total ................................. $8,523 $7,440 $6,784
====== ====== ======
Net revenues directly from federal government agencies in the United
States, principally related to the defense electronics segment, were $1,031
million in 1993, $1,172 million in 1992 and $1,127 million in 1991.
Industry Segment Profit (Loss)
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
Components ............................ $ 689 $ 340 $ (188)
Defense Electronics ................... 188 194 111
Digital Products ...................... 34 27 (52)
Metallurgical Materials ............... (4) 3 2
Eliminations and corporate items ...... (211) (195) (177)
------ ------ ------
Income (loss) before provision for
income taxes and cumulative effect of
accounting changes ................... $ 696 $ 369 $ (304)
====== ====== ======
16
Industry Segment Identifiable Assets
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
Components ............................ $3,016 $2,695 $2,817
Defense Electronics ................... 821 842 946
Digital Products ...................... 718 633 562
Metallurgical Materials ............... 68 57 73
Eliminations and corporate items ...... 1,370 958 611
------ ------ ------
Total ................................. $5,993 $5,185 $5,009
====== ====== ======
Industry Segment Property, Plant and Equipment
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
Depreciation 1993 1992 1991
- ------------ ------ ------ ------
Components ............................ $ 462 $ 457 $ 426
Defense Electronics ................... 104 110 122
Digital Products ...................... 23 24 28
Metallurgical Materials ............... 10 10 10
Eliminations and corporate items ...... 18 9 4
------ ------ ------
Total ................................. $ 617 $ 610 $ 590
====== ====== ======
Millions of Dollars
------------------------------
Additions 1993 1992 1991
- --------- ------ ------ ------
Components ............................ $ 545 $ 314 $ 383
Defense Electronics ................... 92 74 67
Digital Products ...................... 37 13 24
Metallurgical Materials ............... 16 8 10
Eliminations and corporate items ...... 40 20 20
------ ------ ------
Total ................................. $ 730 $ 429 $ 504
====== ====== ======
The following geographic area data includes revenues, costs and expenses
generated by and assets employed in operations located in each area:
Geographic Area Net Revenues
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
United States
Trade ................................ $5,314 $4,829 $4,401
Interarea ............................ 449 407 366
------ ------ ------
5,763 5,236 4,767
------ ------ ------
Europe
Trade ................................ 1,281 1,249 1,116
Interarea ............................ 238 186 102
------ ------ ------
1,519 1,435 1,218
------ ------ ------
East Asia
Trade ................................ 1,860 1,307 1,187
Interarea ............................ 1,223 1,058 874
------ ------ ------
3,083 2,365 2,061
------ ------ ------
Other Areas
Trade ................................ 68 62 80
Interarea ............................ 51 32 25
------ ------ ------
119 94 105
------ ------ ------
Eliminations .......................... (1,961) (1,690) (1,367)
------ ------ ------
Total ................................. $8,523 $7,440 $6,784
====== ====== ======
Geographic Area Profit (Loss)
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
United States ......................... $ 743 $ 581 $ 99
Europe ................................ 33 (24) (207)
East Asia ............................. 63 (28) (41)
Other Areas ........................... -- (5) (8)
Eliminations and corporate items ...... (143) (155) (147)
------ ------ ------
Income (loss) before provision for
income taxes and cumulative effect of
accounting changes ................... $ 696 $ 369 $ (304)
====== ====== ======
Geographic Area Identifiable Assets
- ---------------------------------------------------------------------------
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
United States ......................... $2,589 $2,378 $2,340
Europe ................................ 897 887 1,012
East Asia ............................. 1,310 1,105 1,176
Other Areas ........................... 42 40 48
Eliminations and corporate items ...... 1,155 775 433
------ ------ ------
Total ................................. $5,993 $5,185 $5,009
====== ====== ======
Income Taxes
- ----------------------------------------------------------------------------
Effective January 1, 1993, the company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires increased recording of deferred income tax
assets. As a result, the company recorded additional deferred income tax
assets of $203 million, after a valuation allowance of $404 million, and
reduced deferred income tax liabilities by $87 million, which resulted in a
$290 million credit ($3.10 per share) for the cumulative effect of the
accounting change.
Income (Loss) before Provision for Income Taxes and Cumulative Effect of
- ------------------------------------------------------------------------
Accounting Changes
- ------------------
Millions of Dollars
-----------------------------------------
Geographic area
profit (loss)
------------------ Elims. &
U.S. Non-U.S. corp. items Total
----- -------- ----------- -------
1993 ........................ $ 743 $ 96 $ (143) $ 696
1992 ........................ 581 (57) (155) 369
1991 ........................ 99 (256) (147) (304)
With the exception of interarea elimination of unrealized profit in
assets, which increased $1 million in 1993, decreased $20 million in 1992, and
decreased $23 million in 1991, the remaining corporate items consist primarily
of general corporate expenses which are applicable to both U.S. and non-U.S.
operations. These expenses, as well as U.S. research and development costs
allocated to non-U.S. operations, are generally deductible for tax purposes in
the U.S.
17
Notes to Financial Statements
Provision (Credit) for Income Taxes
- ----------------------------------------------------------------------------
Income tax amounts for 1993 were computed based on SFAS No. 109; amounts for
1992 and 1991 were computed based on the prior accounting standard, SFAS No.
96.
Millions of Dollars
-----------------------------
U.S. Non-U.S. Total
----- -------- -----
1993
- ----
Current ................................. $ 183 $ 96 $ 279
Deferred ................................ (42) (17) (59)
----- ----- -----
Total ................................... $ 141 $ 79 $ 220
===== ===== =====
1992
- ----
Current ................................. $ 152 $ 63 $ 215
Deferred ................................ (97) 4 (93)
----- ----- -----
Total ................................... $ 55 $ 67 $ 122
===== ===== =====
1991
- ----
Current ................................. $ 7 $ 56 $ 63
Deferred ................................ 40 2 42
----- ----- -----
Total ................................... $ 47 $ 58 $ 105
===== ===== =====
Principal reconciling items from income tax computed at the statutory
federal rate follow.
Millions of Dollars
------------------------------
1993 1992 1991
------ ------ ------
Computed tax at statutory rate .............. $ 244 $ 125 $ (103)
Effect of increase in tax rate on net
deferred tax assets ........................ (17) -- --
Effect of change in valuation allowance ..... (2) -- --
Effect of non-U.S. rates .................... (3) 33 119
Increase (decrease) in unrecognized
deferred tax benefits ...................... -- (34) 89
Research and experimentation tax credits .... (8) (2) --
Other ....................................... 6 -- --
------ ------ ------
Total provision for income taxes ............ $ 220 $ 122 $ 105
====== ====== ======
Provision has been made for deferred taxes on undistributed earnings of
non-U.S. subsidiaries to the extent that dividend payments from such companies
are expected to result in additional tax liability. The remaining
undistributed earnings (approximately $525 million at December 31, 1993) have
been indefinitely reinvested; therefore, no provision has been made for taxes
due upon remittance of these earnings. Determination of the amount of
unrecognized deferred tax liability on these unremitted earnings is not
practicable.
The primary components of deferred income tax assets and liabilities
at December 31 were as follows:
Millions of Dollars
-------------------
1993
------
Deferred income tax assets:
Accrued retirement costs (pension and
retiree health care) ............................ $ 262
Inventories and related reserves ................. 183
Accrued expenses ................................. 168
Long-term contracts .............................. 63
Non-U.S. loss carryforwards ...................... 181
Other ............................................ 168
------
1,025
------
Less valuation allowance .......................... (350)
------
675
------
Deferred income tax liabilities:
Property, plant and equipment .................... (81)
Other ............................................ (66)
------
(147)
------
Net deferred income tax asset ..................... $ 528
======
At December 31, 1993, the net deferred income tax asset of $528 million
was presented in the balance sheet, based on tax jurisdiction, as deferred
income tax assets of $568 million and deferred income tax liabilities of $40
million.
Temporary differences at December 31, 1992 consisted primarily of
inventory reserves and other reserves not yet deducted for tax purposes,
differences in depreciation rates and long-term contract valuation amounts,
and undistributed earnings of non-U.S. subsidiaries.
The company has aggregate non-U.S. tax loss carryforwards of approximately
$425 million. Of this amount, $395 million expires through the year 2003 and
$30 million has no expiration.
Income taxes paid were $231 million, $108 million and $22 million for
1993, 1992 and 1991.
18
Rental Expense and Lease Commitments
- ------------------------------------------------------------------------------
Rental and lease expense was $132 million in 1993, $143 million in 1992 and
$145 million in 1991. The company conducts certain operations in leased
facilities and also leases a portion of its data processing and other
equipment. The lease agreements frequently include purchase and renewal
provisions and require the company to pay taxes, insurance and maintenance
costs.
At December 31, 1993, the company was committed under non-cancelable
leases with minimum rentals in succeeding years as follows:
Non-cancelable Leases
- ----------------------------------------------------------------------------
Millions of Dollars
-------------------
1994 ............................................ $ 94
1995 ............................................ 84
1996 ............................................ 68
1997 ............................................ 49
1998 ............................................ 42
Later years ..................................... 249
Report of Ernst & Young, Independent Auditors
- ------------------------------------------------------------------------------
The Board of Directors
Texas Instruments Incorporated
We have audited the accompanying consolidated balance sheet of Texas
Instruments Incorporated and subsidiaries (the Company) at December 31, 1993
and 1992, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Instruments Incorporated and subsidiaries at December 31, 1993 and 1992, and
the results of its operations and cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in the "Profit Sharing and Retirement Plans" and "Income
Taxes" notes to the financial statements, in 1993 the Company changed its
method of accounting for retiree health care benefits and income taxes.
Ernst & Young
Dallas, Texas
January 28, 1994
19
Summary of Selected Financial Data
Years ended December 31 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------
Millions of Dollars
Net revenues ..................... $8,523 $7,440 $6,784 $6,567 $6,522
Operating costs and expenses ..... 7,795 7,020 7,033 6,593 6,203
------ ------ ------ ------ ------
Profit (loss) from operations .... 728 420 (249) (26) 319
Other income (expense) net........ 15 -- (14) 29 59
Interest on loans ................ 47 51 41 24 23
------ ------ ------ ------ ------
Income (loss) before provision
for income taxes and cumulative
effect of accounting changes..... 696 369 (304) (21) 355
Provision for income taxes ....... 220 122 105 18 63
------ ------ ------ ------ ------
Income (loss) before cumulative
effect of accounting changes .... 476 247 (409) (39) 292
Cumulative effect of accounting
changes ......................... (4) -- -- -- --
------ ------ ------ ------ ------
Net income (loss) ................ $ 472 $ 247 $ (409) $ (39) $ 292
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------
Earnings (loss) per common and
common equivalent share:
Income (loss) before cumulative
effect of accounting changes ... $ 5.07 $ 2.50 $(5.40) $ (.92) $ 3.04
Cumulative effect of accounting
changes ........................ (0.04) -- -- -- --
------ ------ ------ ------ ------
Net income (loss) ............... $ 5.03 $ 2.50 $(5.40) $ (.92) $ 3.04
====== ====== ====== ====== ======
Dividends declared per
common share .................... .72 .72 .72 .72 .72
- ------------------------------------------------------------------------------
Average common and common
equivalent shares outstanding
during year, in thousands ....... 93,606 85,311 81,970 81,614 84,934
- ------------------------------------------------------------------------------
As of December 31 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------
Millions of Dollars
Working capital .................. $1,313 $ 961 $ 813 $ 826 $1,144
Property, plant and
equipment (net) ................. 2,203 2,133 2,354 2,480 2,130
Total assets ..................... 5,993 5,185 5,009 5,048 4,804
Long-term debt ................... 694 909 896 715 617
Stockholders' equity ............. 2,315 1,947 1,955 2,358 2,485
- ------------------------------------------------------------------------------
Employees ........................ 59,048 60,577 62,939 70,318 73,854
Stockholders of record ........... 29,129 31,479 35,162 36,268 36,096
See Notes to Financial Statements and Management Discussion and Analysis of
Financial Condition and Results of Operations.
20
Supplemental Financial Information
Management Discussion and Analysis of
Financial Condition and Results of Operations
- ------------------------------------------------------------------------------
The management discussion and analysis of the company's financial condition
and results of operations consists of the letter to stockholders set forth on
pages 3 through 5 of this report and the following additional information:
1993 Results of Operations Compared with 1992
- ------------------------------------------------------------------------------
TI's orders for 1993 were $8595 million, up 12 percent from $7645 million
in 1992. Significantly higher semiconductor orders in the components segment
were the primary contributor to the change.
TI's net revenues for 1993 were $8523 million, compared with $7440 million
in 1992. Essentially all of the increase was in semiconductor revenues in the
components segment, resulting primarily from new products and increased
shipments. Royalty revenues for the year were $521 million, up 33 percent
from 1992. The increase was primarily the result of new agreements with
personal computer manufacturers covering TI's computer systems patents and
higher shipments by licensees under TI's semiconductor patents. Profit from
operations was $728 million in 1993, up 73 percent from $420 million in 1992.
Higher semiconductor operating profits and higher royalties accounted for
virtually all of the increase. Results for 1993 include a profit-sharing
accrual of $83 million. There was no accrual for profit sharing in 1992.
The income tax provision for 1993 is for U.S. and non-U.S. taxes, net of a
third-quarter increase in deferred tax assets for the effect of the increase
in the U.S. statutory rate. TI's income tax rate for the year was 31.6
percent. The fourth-quarter tax rate was 33.9 percent.
TI's orders for the fourth quarter of 1993 were $2247 million, compared
with $2211 million for the same period in 1992. Higher semiconductor orders
in the components segment and a sharp increase in notebook computer orders in
the digital products segment offset a decline in defense electronics orders.
Net revenues for the fourth quarter of 1993 were $2374 million, up 19
percent from the fourth quarter of 1992. Most of the increase was in
semiconductor revenues, resulting from new products and, to a lesser extent,
increased shipments and higher semiconductor prices. Profit from operations
increased 75 percent to $198 million, from $113 million in the same period of
1992. The improvement was in the components segment, reflecting improved
semiconductor operating results and higher royalties. Semiconductor margins
continued their pattern of consistent improvement and were at double-digit
levels in the fourth quarter of 1993.
Fourth-quarter 1993 results include an accrual of $31 million for profit
sharing and a pretax charge of $23 million related to the consolidation of
TI's consumer and peripheral products businesses. There were no profit-
sharing accruals or consolidation charges in the fourth quarter of 1992. Net
income in the fourth quarter of 1993 was $134 million, and earnings per share
were $1.42, compared with net income of $78 million and earnings per share of
$0.80 in the fourth quarter of 1992. Royalty revenues in the fourth quarter
of 1993 were $133 million, compared with $89 million in the same period of
1992. Virtually all of the royalty revenues in the fourth quarter of 1993
were related to licensee shipments during the quarter.
TI's backlog of unfilled orders as of December 31, 1993, was $3805 million,
up $72 million from the end of 1992, as increases in semiconductor backlog
more than offset a decline in defense electronics. Backlog was down $126
million from the end of the third quarter of 1993 because of a decline in
defense electronics backlog.
TI-funded R&D was $590 million for 1993 and $170 million for the fourth
quarter, compared with $470 million and $121 million for the same periods of
1992. Customer-funded R&D was $391 million in 1993, compared with $421
million in 1992.
Capital expenditures were $730 million in 1993 and $218 million in the
fourth quarter, compared with $429 million and $147 million in the same
periods of 1992.
Depreciation for 1993 was $617 million, compared with $610 million in 1992,
and $167 million in the fourth quarter of 1993, compared with $156 million in
the same period of 1992. Depreciation in 1994 is expected to be about $700
million.
Components Segment
Orders in the components segment were up 32 percent for the year, and revenues
up 28 percent, from 1992. Components segment profit doubled from 1992, with
semiconductor operating improvement accounting for virtually all of the
increase.
For the fourth quarter of 1993, orders in the components segment were up 30
percent over the same period of 1992, with strong increases in semiconductor
orders. Segment revenues were up 33 percent from the same period of a year
ago, reflecting higher semiconductor revenues. Segment profit increased
substantially over the fourth quarter of 1992 because of improved
semiconductor operating performance and higher royalties.
Defense Electronics Segment
In TI's defense electronics segment, 1993 orders were down 26 percent from
1992 because Operation Desert Storm replenishment orders were not repeated in
1993. Revenues were down 7 percent from 1992, primarily because of reduced
shipments of the High-Speed Antiradiation Missile. Margins for the year were
essentially flat with 1992.
Fourth-quarter 1993 orders in defense electronics were down 48 percent from
the fourth quarter of 1992 because of the absence of Desert Storm-related
orders. Revenues were down 4 percent from the fourth quarter of 1992.
Revenues were up substantially from the third quarter of 1993, reflecting
shipments that were delayed from the third quarter and
21
the phasing of low-margin programs. Margins remained stable from the fourth
quarter of 1992.
Digital Products Segment
Orders in TI's digital products segment were up 11 percent in 1993, and
revenues up 8 percent, compared with 1992. Excluding the effect of the 1992
sale of TI's multiuser minicomputer systems and service operations to Hewlett-
Packard, 1993 orders were up 25 percent, and revenues up 24 percent, over
1992. The segment operated at a profit for the year 1993, as royalty revenues
more than offset operating losses.
For the fourth quarter of 1993, orders in the digital segment were up 26
percent, and revenues were up 15 percent, from the same period of 1992.
Before the effect of the $23 million consolidation charge, the segment was
essentially at breakeven in the fourth quarter of 1993, as royalty revenues
offset a loss in consumer products.
Metallurgical Materials Segment
In the metallurgical materials segment, orders were up 12 percent, and
revenues were up 5 percent, from 1992. The segment operated at a small loss
for the year, primarily because of increased investments in new technologies,
including solar energy. In the fourth quarter of 1993, orders were up 11
percent, and revenues were up 11 percent, from the same period of 1992. The
segment operated at a small loss in the fourth quarter of 1993.
Intellectual Property
During 1993, TI reached new semiconductor patent-license agreements with
Hyundai Electronics Industries Co., Ltd. and Nippon Steel Semiconductor
Corporation. We also reached computer systems patent-license agreements with
personal computer manufacturers including Compaq Computer Corporation, Daewoo
Electronics Company, Ltd., Daewoo Telecom Co., Ltd., Dell Computer
Corporation, Gateway 2000, Inc., Hyundai, Packard Bell Electronics, Inc.,
Toshiba Corporation, and Zenith Data Systems.
Litigation in Japan continues with Fujitsu Limited regarding TI s Japanese
patent on the invention of the integrated circuit (the Kilby patent). TI is
seeking damages and injunctive relief, and Fujitsu is seeking a declaration
that Fujitsu products do not infringe the Kilby patent. TI is also in
litigation in the United States with other companies concerning its patents
relating to semiconductors and computer systems.
Negotiations with additional potential semiconductor and personal-computer
licensees are ongoing. These negotiations by their nature are not predictable
as to outcome or timing, and results may vary depending on the parties
relative patent posture, the use by each party of the other s patents, the
sales volume of each party, and other factors. TI continues to earn a
significant ongoing stream of royalty revenue.
Financial Condition
- -----------------------------------------------------------------------------
TI's financial condition continued to strengthen in 1993. The company made
further progress toward management's goal of reducing TI's debt-to-total-
capital ratio and generated positive cash flow net of additions to property,
plant and equipment.
During 1993, cash and cash equivalents plus short-term investments increased
by $29 million to $888 million as of December 31, 1993. Cash provided by
operating activities net of additions to property, plant and equipment was a
positive $204 million for the year. In addition, the company raised $77
million of cash through the sale of common stock in conjunction with employee
benefit plans. TI's debt-to-total-capital ratio was .28 at the end of the
year, down .01 from the third quarter and down .05 from year-end 1992. TI's
goal is to reduce this ratio to about.25.
In a series of three redemptions of approximately equal numbers of shares, the
company redeemed all of its Series A Conversion Preferred Stock and related
depositary shares during 1993. In exchange for the aggregate 11,114,000
depositary shares redeemed, the company issued the following number of shares
of TI common stock: 2,412,829 on June 25; 2,025,024 on September 10; and
1,828,665 on September 27. At the end of the third quarter, the company
classified as a current liability its $200 million of 2.75 percent convertible
subordinated debentures due 2002, since these debentures may be redeemed at
the holder's option, by prior notice, during a 30-day period beginning
September 29, 1994. In anticipation of this potential redemption, the company
is considering various financing alternatives.
On October 19 and November 2, 1993, the company redeemed its remaining two
series of auction-rate preferred stock (liquidation value $74.6 million and
$75.0 million, respectively) at liquidation value plus accrued and unpaid
dividends.
Effective January 1, 1993, the company adopted a new FASB statement, SFAS No.
106, which requires the accrual of expected retiree health care benefit costs
during the employees' working careers, instead of when the claims are
incurred. The company recorded an accumulated postretirement benefit
obligation of $454 million and a related deferred income tax asset of $160
million, which resulted in a $294 million charge ($3.14 per share) for the
cumulative effect of the accounting change. In 1993, pretax expense for this
benefit plan was $41 million. The aggregate pension and retiree health care
benefit expense is expected to be somewhat lower in 1994 than in 1993, as the
effect of lower interest rates is more than offset by the effect of favorable
investment returns, fewer employees and changes in other assumptions. In
1992, pretax expense for retiree health care, on a claims-incurred basis, was
$24 million. The company is partially funding the plan obligation.
22
Supplemental Financial Information
Also adopted effective January 1, 1993, was SFAS No. 109, which requires
increased recording of deferred income tax assets. As a result, the company
recorded additional deferred income tax assets of $203 million, after a
valuation allowance of $404 million, and reduced deferred income tax
liabilities by $87 million, which resulted in a $290 million credit ($3.10 per
share) for the cumulative effect of the accounting change.
The net effect of the two cumulative accounting change amounts was a $4
million charge ($0.04 per share).
At December 31, 1993, the company had deferred income tax assets of $568
million, after a valuation allowance of $350 million, and deferred income tax
liabilities of $40 million. The valuation allowance reflects the company's
assessment regarding the realizability of certain non-U.S. deferred income tax
assets. The balance of the deferred income tax assets is considered
realizable based on carryback potential, existing taxable temporary
differences, and expectation of future income levels comparable to recent
results. Such future income levels are not assured because of the nature of
the company's businesses which are generally characterized by rapidly changing
technology and intense competition. The company evaluates realizability of
the deferred income tax assets quarterly.
The company maintains unused lines of credit to support commercial paper
borrowing and to provide additional liquidity. Unused lines of credit were
approximately $569 million at December 31, 1993. Of this amount, $470 million
was available to support commercial paper borrowing.
Authorizations for future capital expenditures were approximately $603 million
at December 31, 1993. In view of greater semiconductor demand, we plan to
increase capital expenditures in 1994 to about $1 billion, from $730 million
in 1993. The funds will be supplied by cash from operations and existing cash
balances.
The company believes that its financial condition provides the foundation for
continued support of the programs essential to TI's future.
1992 Results of Operations Compared with 1991
- ------------------------------------------------------------------------------
TI's orders for 1992 were $7645 million, up 14 percent from $6725 million in
1991. Significantly higher semiconductor orders in components were the
primary contributor to the change, along with replenishment orders in defense
electronics resulting from Operation Desert Storm.
TI's net revenues for 1992 were $7440 million, compared with $6784
million in 1991. Increased semiconductor revenues, across all major product
lines, were the largest contributor to this change. Profit from operations was
$420 million in 1992, compared with a loss from operations of $249 million in
1991. Operating results improved in every TI business as a result of cost
savings and operating improvements, with the largest gain in semiconductors.
For 1991, charges for cost reductions, net of a pension settlement gain in the
fourth quarter, were $240 million.
Net income for 1992 was $247 million, compared with a net loss of $409
million in 1991.
The income tax provision for 1992 was for U.S. and non-U.S. taxes, net
of an increase in deferred tax assets. For 1991, the provision was primarily
for non-U.S. taxes and a decrease in deferred tax assets.
TI's backlog of unfilled orders as of December 31, 1992, was $3733
million, up $156 million from the end of 1991, primarily because of increases
in semiconductor backlog and replenishment orders in defense electronics.
TI-funded R&D was $470 million in 1992, compared with $527 million in
1991. Customer-funded R&D was $421 million in 1992, compared with $388
million in 1991.
Capital expenditures were $429 million in 1992, compared with $504
million in 1991.
Depreciation for 1992 was $610 million, compared with $590 million in
1991.
Components Segment
Orders in the components segment were up 20 percent for the year, and revenues
up 16 percent, from 1991. Semiconductor operating results were substantially
improved from 1991, as a result of increased shipments, especially in
application-specific products; benefits from the cost reductions initiated in
1991; and operating improvements in memory. The 1991 segment results included
charges of $121 million for cost reductions.
Defense Electronics Segment
In TI's defense electronics segment, 1992 orders were up 10 percent, and
revenues were up 3 percent, from 1991. Margins in defense electronics were
essentially stable in 1992 compared with the previous year, after adjusting
for the 1991 cost-reduction charge of $67 million.
Digital Products Segment
Orders in TI's digital products segment were up 1 percent in 1992, and
revenues up 2 percent, compared with 1991. The 1991 results included charges
of $31 million for cost reductions. The segment operated at a profit in 1992.
Metallurgical Materials Segment
In the metallurgical materials segment, orders and revenues in 1992 were both
down 4 percent from 1991. Revenues were affected by sluggish world economies
and resulting weakness in key markets. Profits in 1992 were restrained by
new-venture investments for solar energy.
Intellectual Property
Net revenues for 1992 included royalty revenues of $391 million, compared with
$256 million in 1991. The increase in 1992 took into consideration new
semiconductor patent-license agreements with Mitsubishi Electric Corporation;
Sanyo Electric Co., Ltd.; and six other Japanese semiconductor manufacturers.
23
Supplemental Financial Information
Inflation
- ------------------------------------------------------------------------------
Within the limits of generally accepted accounting principles, the company
believes its financial statements tend to reasonably match current levels of
costs with revenues of the period, except for depreciation. To the extent
current costs of fixed assets exceed historical costs, depreciation on an
inflation-adjusted basis would be greater than historical cost depreciation.
Common Stock Prices and Dividends
- -----------------------------------------------------------------------------
TI common stock is listed on the New York Stock Exchange and traded
principally in that market. In addition, TI common stock is listed on the
London and Tokyo stock exchanges and in Switzerland on the Zurich, Geneva and
Basel stock exchanges. The table below shows the high and low prices of TI
common stock on the composite tape as reported by The Wall Street Journal and
the dividends paid per common share for each quarter during the past two
years.
Quarter
--------------------------------------------
1st 2nd 3rd 4th
- -----------------------------------------------------------------------------
Stock prices:
1993 High .................... $63.38 $72.38 $84.25 $76.50
Low ..................... 45.75 51.63 65.88 55.75
1992 High .................... 40.50 38.88 45.00 52.25
Low ..................... 30.00 31.50 35.50 39.00
Dividends paid:
1993 ......................... $ .18 $ .18 $ .18 $ .18
1992 ......................... .18 .18 .18 .18
Quarterly Financial Data
- ------------------------------------------------------------------------------
1993 Millions of Dollars, Except Per-Share Amounts
---------------------------------------------
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
Net revenues ...................... $1,884 $2,105 $2,161 $2,374
Gross profit ...................... 477 548 609 615
Profit from operations ............ 140 173 218 198
Income before provision
for income taxes and cumulative
effect of accounting changes ..... 129 169 196 202
Income before cumulative effect
of accounting changes ............ 85 112 146 134
Net income ........................ 81 112 146 134
Earnings per common and
common equivalent share:
Income before cumulative effect
of accounting changes ........... $ .89 $ 1.18 $ 1.54 $ 1.42
Net income ....................... .85 1.18 1.54 1.42
==============================================================================
1992 Millions of Dollars, Except Per-Share Amounts
---------------------------------------------
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
Net revenues ...................... $1,694 $1,867 $1,892 $1,987
Gross profit ...................... 370 449 451 449
Profit from operations ............ 63 128 116 113
Income before provision
for income taxes ................. 63 109 88 110
Net income ........................ 40 72 57 78
Earnings per common and
common equivalent share .......... $ .35 $ .73 $ .58 $ .80
==============================================================================
Effective January 1, 1993, the company adopted two new accounting
standards: SFAS No. 106, which requires accrual of expected retiree health
care benefit costs during the employees' working careers, and SFAS No. 109,
which requires increased recording of deferred income tax assets. This
resulted in a first quarter charge of $294 million ($3.12 per share) for SFAS
No. 106 and a credit of $290 million ($3.08 per share) for SFAS No. 109, for
the cumulative effect of the accounting changes.
Earnings per common and common equivalent share are based on average
common and common equivalent shares outstanding (94,154,923 shares and
95,713,491 shares for the fourth quarters of 1993 and 1992) and "net income,
less dividends accrued on preferred stock" ($133 million and $69 million for
the fourth quarters of 1993 and 1992). In computing per-share earnings, "net
income, less dividends accrued on preferred stock" is increased by $1 million
and $7 million for the fourth quarters of 1993 and 1992 for dividends and
interest (net of tax and profit sharing effect) on the conversion preferred
stock and convertible debentures considered dilutive common stock equivalents.
_____________________
DMD and TIRIS are registered trademarks of Texas Instruments Incorporated.
24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements, and in the related prospectuses thereto, of our report dated
January 28, 1994 with respect to the consolidated financial statements of
Texas Instruments Incorporated for the year ended December 31, 1993, included
in this Current Report on Form 8-K; Registration Statement No. 33-61154 on
Form S-8, Registration Statement No. 33-21407 on Form S-8, Registration
Statement No. 33-42172 on Form S-8, Registration Statement No. 33-18509 on
Form S-3 and Registration Statement No. 33-48840 on Form S-3.
ERNST & YOUNG
Dallas, Texas
February 4, 1994
25
SIGNATURE
---------
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
By WILLIAM A. AYLESWORTH
Senior Vice President, Treasurer
and Chief Financial Officer
Date: February 7, 1994
Exhibit Index
Designation of
Exhibit in Paper (P) or
this Report Description of Exhibit Electronic (E)
- -------------- ------------------------------- --------------
11 Computation of primary and fully E
diluted earnings per common and
common equivalent share.
12 Computation of Ratio of Earnings E
to Fixed Charges and Preferred
Stock Dividends.
23 Consent of Ernst & Young (see E
page 25 hereof).
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per-share amounts.)
Years Ended December 31
-----------------------------------
1993 1992 1991
-------- -------- ---------
Income (loss) before cumulative effect of accounting changes ..... $476,226 $247,001 $(409,214)
Less preferred dividends accrued:
Market auction preferred ..................................... (2,043) (7,617) (15,638)
Money market preferred ....................................... (2,028) (4,723) (3,938)
Convertible money market preferred ........................... - - (6,931)
Series A conversion preferred ................................ (16,097) (25,118) (7,116)
Add:
Dividends on series A conversion preferred
shares assumed converted ................................... 16,097 - -
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted ................... 2,681 3,945 -
-------- -------- ---------
Adjusted income (loss) before cumulative effect
of accounting changes .......................................... 474,836 213,488 (442,837)
Cumulative effect of accounting changes .......................... (4,173) - -
Adjusted net income (loss) ....................................... $470,663 $213,488 $(442,837)
======== ======== =========
Earnings (loss) per Common and Common Equivalent Share:
- -------------------------------------------------------
Weighted average common shares outstanding ....................... 85,950 82,324 81,970
Weighted average common equivalent shares:
Stock option and compensation plans .......................... 1,323 373 -
Convertible debentures ....................................... 2,413 2,614 -
Series A conversion preferred ................................ 3,920 - -
-------- -------- ---------
Weighted average common and common equivalent shares ........... 93,606 85,311 81,970
======== ======== =========
Earnings (loss) per Common and Common Equivalent Share:
Income (loss) before cumulative effect of accounting changes ... $ 5.07 $ 2.50 $ (5.40)
Cumulative effect of accounting changes ........................ (0.04) - -
Net income (loss) .............................................. $ 5.03 $ 2.50 $ (5.40)
Earnings (loss) per Common Share Assuming Full Dilution:
- --------------------------------------------------------
Weighted average common shares outstanding ....................... 85,950 82,324 81,970
Weighted average common equivalent shares:
Stock option and compensation plans .......................... 1,394 859 -
Convertible debentures ....................................... 2,413 2,614 -
Series A conversion preferred ................................ 3,920 - -
-------- -------- ---------
Weighted average common and common equivalent shares ........... 93,677 85,797 81,970
======== ======== =========
Earnings (loss) per Common Share Assuming Full Dilution:
Income (loss) before cumulative effect of accounting changes ... $ 5.07 $ 2.49 $ (5.40)
Cumulative effect of accounting changes ........................ (0.05) - -
Net income (loss) .............................................. $ 5.02 $ 2.49 $ (5.40)
EXHIBIT 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)
1989 1990 1991 1992 1993
----- ----- ----- ----- -----
Income (loss) before income taxes
and fixed charges:
Income (loss) before cumulative
effect of accounting changes,
interest expense on loans,
capitalized interest amortized,
and provision for income taxes ...... $ 387 $ 14 $(250) $ 433 $ 755
Add interest attributable to
rental and lease expense ............ 47 50 43 42 38
----- ----- ----- ----- -----
$ 434 $ 64 $(207) $ 475 $ 793
===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized) .................... $ 38 $ 47 $ 59 $ 57 $ 55
Interest attributable to rental
and lease expense ................... 47 50 43 42 38
----- ----- ----- ----- -----
Fixed charges ............................. $ 85 $ 97 $ 102 $ 99 $ 93
===== ===== ===== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges ......................... $ 85 $ 97 $ 102 $ 99 $ 93
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis) ............ 47 36 34 55 29
----- ----- ----- ----- -----
Combined fixed charges and
preferred stock dividends ........... $ 132 $ 133 $ 136 $ 154 $ 122
===== ===== ===== ===== =====
Ratio of earnings to fixed charges ........ 5.1 * * 4.8 8.5
===== ===== ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends ......................... 3.3 ** ** 3.1 6.5
===== ===== ===== ===== =====
* Not meaningful. The coverage deficiency was $33 million in 1990 and $309 million in 1991.
** Not meaningful. The coverage deficiency was $69 million in 1990 and $343 million in 1991.
