SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
13500 North Central Expressway, P.O. Box 655474, Dallas, Texas 75265-5474
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-995-3773
---------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
189,485,635
- -----------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding
as of March 31, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
- ------------------------------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Three Months Ended
Mar. 31 Mar. 31
Income 1996 1995
- ------ -------- --------
Net revenues................................................................ $ 3,076 $ 2,862
Operating costs and expenses:
Cost of revenues.......................................................... 2,187 1,903
Research and development.................................................. 263 213
Marketing, general and administrative..................................... 429 402
-------- --------
Total................................................................... 2,879 2,518
-------- --------
Profit from operations...................................................... 197 344
Other income (expense) net.................................................. 55 17
Interest on loans........................................................... 12 13
-------- --------
Income before provision for income taxes.................................... 240 348
Provision for income taxes.................................................. 77 118
-------- --------
Net income.................................................................. $ 163 $ 230
======== ========
Earnings per common and common equivalent share............................. $ 0.84 $ 1.21
Cash dividends declared per share of common stock........................... $ 0.17 $ .125
Cash Flows
- ----------
Net cash provided by (used in) operating activities......................... $ (72) $ 233
Cash flows from investing activities:
Additions to property, plant and equipment................................ (542) (223)
Purchases of short-term investments....................................... (7) (164)
Sales and maturities of short-term investments............................ 144 268
Proceeds from sale of business............................................ 120 --
-------- --------
Net cash used in investing activities....................................... (285) (119)
Cash flows from financing activities:
Addition to long-term debt................................................ 300 --
Dividends paid on common stock............................................ (32) (23)
Sales and other common stock transactions................................. 3 26
Other..................................................................... 9 27
-------- --------
Net cash provided by financing activities................................... 280 30
Effect of exchange rate changes on cash..................................... (8) 13
-------- --------
Net increase (decrease) in cash and cash equivalents........................ (85) 157
Cash and cash equivalents, January 1........................................ 1,364 760
-------- --------
Cash and cash equivalents, March 31......................................... $ 1,279 $ 917
======== ========
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
(In millions of dollars, except per-share amounts.)
Mar. 31 Dec. 31
Balance Sheet 1996 1995
- ------------- ------- -------
Assets
Current assets:
Cash and cash equivalents.......................................... $ 1,279 $ 1,364
Short-term investments............................................. 52 189
Accounts receivable, less allowance for losses of
$60 million in 1996 and $45 million in 1995...................... 2,057 2,320
Inventories:
Raw materials.................................................... 248 299
Work in process.................................................. 723 607
Finished goods................................................... 376 434
Less progress billings........................................... (196) (205)
------- -------
Inventories (net of progress billings)......................... 1,151 1,135
------- -------
Prepaid expenses................................................... 65 57
Deferred income taxes.............................................. 464 453
------- -------
Total current assets............................................. 5,068 5,518
------- -------
Property, plant and equipment at cost................................ 6,040 5,631
Less accumulated depreciation...................................... (2,524) (2,444)
------- -------
Property, plant and equipment (net).............................. 3,516 3,187
------- -------
Deferred income taxes................................................ 226 229
Other assets......................................................... 312 281
------- -------
Total assets......................................................... $ 9,122 $ 9,215
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 37 $ 27
Accounts payable................................................... 984 1,110
Accrued and other current liabilities.............................. 1,576 2,051
------- -------
Total current liabilities........................................ 2,597 3,188
------- -------
Long-term debt....................................................... 1,105 804
Accrued retirement costs............................................. 833 801
Deferred credits and other liabilities............................... 356 327
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000 shares.
Participating cumulative preferred. None issued.................. -- --
Common stock, $1 par value. Authorized - 300,000,000 shares.
Shares issued: 1996 - 189,626,360; 1995 - 189,526,939............ 190 190
Paid-in capital.................................................... 1,083 1,081
Retained earnings.................................................. 3,012 2,881
Less treasury common stock at cost.
Shares: 1996 - 140,725; 1995 - 138,129........................... (12) (12)
Other.............................................................. (42) (45)
------- -------
Total stockholders' equity....................................... 4,231 4,095
------- -------
Total liabilities and stockholders' equity........................... $ 9,122 $ 9,215
======= =======
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Earnings per common and common equivalent share are based on average common
and common equivalent shares outstanding (194.2 and 190.9 million shares for
the first quarters of 1996 and 1995). Shares issuable upon exercise of
dilutive stock options and upon conversion of dilutive convertible debentures
are included in average common and common equivalent shares outstanding.
On February 2, 1996, the company issued $300 million of 6.125 percent notes
due 2006.
Beginning in 1996, the company has made reclassifications to its statement of
income to conform with current industry practices. Research and development
expense, which was previously included in cost of revenues, is now presented
separately. Also, employees' retirement and profit sharing plans expense,
previously separately reported, is now allocated throughout operating costs
and expenses, consistent with other employee benefit costs. Prior year
amounts have been reclassified to conform with the 1996 presentation.
Following are relevant portions of the statements of income for the last
three quarterly periods of 1995 on a reclassified basis:
For Three Months Ended
-----------------------------
June 30 Sept. 30 Dec. 31
1995 1995 1995
------- -------- -------
Net revenues........................ $3238 $3425 $3603
Operating costs and expenses:
Cost of revenues................... 2148 2322 2381
Research and development........... 215 221 279
Marketing, general and
administrative.................... 472 445 534
----- ----- -----
Total............................. 2835 2988 3194
----- ----- -----
Profit from operations.............. $ 403 $ 437 $ 409
===== ===== =====
The statements of income, statements of cash flows and balance sheet at
March 31, 1996, are not audited but reflect all adjustments which are of a
normal recurring nature and are, in the opinion of management, necessary to
a fair statement of the results of the periods shown.
4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Registrant (the "company" or "TI") announced quarterly financial
results that were significantly impacted by accelerated declines in prices
of dynamic random access memory (DRAM) chips, and lower royalty revenues.
While the current DRAM market is volatile, demand for most of TI's
differentiated products remains strong, particularly digital signal
processing solutions, mixed-signal/analog, and telecommunications. TI
continues to believe that the fundamental end-equipment markets of the
electronics industry remain healthy, providing sustainable long-term growth
opportunities.
FINANCIAL SUMMARY
Net revenues for the first quarter of 1996 were $3076 million, up seven
percent from the first quarter of 1995, but down sequentially from the
record fourth quarter of 1995. The increase resulted primarily from growth
in semiconductors and personal productivity products revenues.
Profit from operations for the quarter was $197 million, compared with $344
million in the first quarter of 1995. Net income for the quarter was $163
million, compared to $230 million in the first quarter of 1995. Earnings per
share were $0.84, compared with $1.21 in the first quarter of 1995.
TI's financial results were adversely affected by sharp and unprecedented
DRAM price declines in the first quarter. Prices dropped due to excess
inventory in the market, which particularly impacted TI's March revenues.
TI's joint ventures, which share in the risks and rewards of DRAM
production, help reduce the effect of market volatility on the company.
However, these supply arrangements were not able to fully comprehend an
environment such as the first quarter of 1996, in which average unit prices
for DRAMs dropped by 30 to 50 percent.
SEMICONDUCTORS
Semiconductor orders in the first quarter of 1996 declined primarily because
of the weakness in DRAM pricing. Semiconductor revenues were up from year-
ago levels, but down sequentially because of lower DRAM pricing.
In contrast, orders for digital signal processing solutions (DSPS) grew
strongly in the quarter, with digital signal processors reaching an all-time
high. TI continues to see strong demand from modem, hard disk drive, and
telecommunications manufacturers.
In view of the substantial market opportunity for DSPS, TI has stepped up
investments in new product development, marketing support and process
technology. The company also plans to increase investments in the mixed-
signal/analog market in 1996 to further strengthen TI's leadership in DSPS.
Demand for mature advanced systems logic (ASL) products remains soft, but
demand for new ASL products is strong, and activity for design-ins remains
high.
5
The company continues its emphasis on operational excellence and
productivity improvements to achieve the equivalent output of an additional
wafer fabrication facility during 1996 -- for the third consecutive year.
Additionally, TI is in the process of implementing a "super-shrink" for 16-
megabit DRAMs, which will be in production in the second half of 1996. This
effort, together with improvements in manufacturing, will keep TI among the
leaders in process technology.
DEFENSE SYSTEMS & ELECTRONICS
Orders increased in TI's defense systems and electronics business, which
maintained stable margins on slightly lower revenues. During the quarter,
the TI/Martin Marietta joint venture received its third low-rate initial
production contract for Javelin antitank weapon systems. Javelin is the
world's first "fire and forget" infantry system of this type.
Continuing its leadership in the defense industry's move toward commercial
practices, TI became the first contractor to complete a "block change" as
authorized under a December 1995 Defense Department directive. In this
change, 65 cumbersome specifications for the assembly process, affecting all
of TI's prime contracts with the U.S. Department of Defense, have been
replaced by eight streamlined, commercial standards. Moves like these allow
TI to further strengthen cost competitiveness.
MATERIALS AND CONTROLS
Revenues in TI's materials and controls business were up from the first
quarter of 1995, reflecting strength in the U.S. automotive business and
generally higher volumes in the worldwide climate and appliance markets.
PERSONAL PRODUCTIVITY PRODUCTS
Strong sales of the Extensa( line of mobile computers were primarily
responsible for record quarterly revenues in TI's personal productivity
products business. Mobile computing product revenues more than tripled over
the comparable period of 1995, with significant new business wins in the
distribution segment and at direct corporate accounts. The calculator
business continues to gain strength in its leadership position in the
instructional market.
EMERGING OPPORTUNITIES
During the quarter, TI's digital imaging business reached a milestone by
shipping the first production units of Digital Light Processing( (DLP)(
subsystems to support customer plans for market introduction of commercial
projectors.
Revenues in TI's software business were up moderately from the first quarter
of 1995, due primarily to strength in Europe. During the first quarter of
1996, the business announced the commercial release of WebCenter(, which,
together with Composer(, enables customers to build, deploy and access
enterprise-scale applications via the Internet.
6
SUMMARY
TI's plans for 1996 are based on continued healthy growth of the worldwide
PC market, despite some dislocations at individual manufacturers and higher
inventories of semiconductors. Overall end-equipment demand continues to
grow above historical trends.
The long-term outlook for the worldwide semiconductor market remains
positive. However, because of the sharp decline in DRAM prices, growth in
1996 will be less than the 20 percent previously projected for the year. In
this environment, TI will manage capital spending, R&D and other expenses as
market needs dictate.
Despite the mixed patterns in the semiconductor market, TI's position in
terms of strategic products, customer relationships, and core technologies
remains strong. The company will continue to apply its broad capabilities to
create digital solutions for the emerging networked society.
7
ADDITIONAL FINANCIAL INFORMATION
Change in orders, Change in net revenues,
Segment 1Q96 vs. 1Q95 1Q96 vs. 1Q95
- ------- ----------------- -----------------------
Components down 10% up 5%
Defense Systems & up 13% down 2%
Electronics
Digital Products up 19% up 35%
Total down 4% up 7%
TI's orders for the first quarter of 1996 were $3194 million, compared with
$3311 million in the same period of 1995. The decrease was due primarily to
DRAM pricing. The increase in defense systems and electronics orders was due to
volume and timing of new orders. Mobile computing accounted for most of the
increase in digital products.
TI's revenues for the first quarter of 1996 were $3076 million, compared
with $2862 million in the same period of 1995. The increase in components
segment revenues resulted from higher semiconductor revenues. Digital
products revenues were up primarily due to increased shipments of mobile
computers.
Profit from operations for the first quarter of 1996 decreased 43 percent
over the year-ago period, to $197 million, primarily because of the drop in
DRAM prices and lower royalty revenues. Royalty revenues in first-quarter
1996 were lower, primarily due to the previously reported expiration of
semiconductor patent licenses at the end of 1995, principally the license
with Samsung Electronics Co., Ltd. First-quarter 1995 royalty revenues
included a favorable adjustment of $36 million related to higher-than-
estimated licensee shipments in the second half of 1994.
First-quarter 1996 results include moderate non-operating gains on the sale
of TI's custom manufacturing business, the sale of certain non-strategic
investments and non-loan interest adjustments.
TI has reached an agreement with OKI Ltd. on the principal terms and
conditions of a ten-year worldwide semiconductor cross-license. When
executed, the new agreement will be effective as of April 1, 1996, the first
date after expiration of a similar five-year agreement between the parties.
The agreement recognizes the patents of both parties and is consistent with
TI's objective of receiving fair value for its technology. Under the
agreement, OKI will pay ongoing royalties to TI based on OKI's worldwide
sales of integrated circuit products. The royalty rates under the new
agreement are slightly lower than the rate under the prior agreement in
recognition of the longer license term.
Negotiations continue with other companies for renewal of expired licenses.
However, these negotiations by their nature are not predictable as to
outcome or timing.
8
Components segment profit was down considerably over the first quarter of
1995, primarily due to abrupt price declines in DRAMs and lower royalty
revenues.
The digital segment operated at a loss during the quarter, somewhat larger
than a year ago, primarily due to continued high marketing investments and
new product development in mobile computing, and communications and
electronic systems. However, the loss narrowed from the fourth quarter of
1995.
The income tax rate for the first quarter of 1996 was 32 percent, which is
the current estimate of the rate for the full year.
During the quarter, cash and cash equivalents plus short-term investments
decreased by $222 million to $1331 million. Net cash provided by operating
activities was negatively impacted by the pay-out of 1995 profit sharing and
higher than normal receivables caused by the timing of first quarter
shipments. TI received a $120 million cash payment from the sale of its
custom manufacturing business. On February 2, 1996, TI issued $300 million
of 6.125 percent notes due 2006. The debt-to-total-capital ratio was .21, up
.04 from the year-end 1995 value of .17.
TI's backlog of unfilled orders as of March 31, 1996, was $4554 million, up
$26 million from the end of 1995 and up $208 million from the first quarter
of 1995. Most of the increases were from defense systems and electronics,
and semiconductors, which more than offset adjustments to the backlog
related to the sale of the custom manufacturing business.
TI R&D was $263 million in the first quarter of 1996, compared with $213
million in the first quarter of 1995. The increase was driven primarily by
investments in semiconductor products.
Capital expenditures in the first quarter of this year were $542 million,
compared with $223 million in the first quarter of 1995.
Depreciation in the first quarter of 1996 was $190 million, compared with
$176 million in the year-ago period.
Return on invested capital (ROIC) and return on common equity (ROCE) are
measures TI uses to monitor progress in building shareholder value. For the
four quarters ending March 31, 1996, ROIC was 21.5 percent, and ROCE was
27.2 percent. In the four quarters ending March 31, 1995, ROIC was 20.9
percent and ROCE was 27.4 percent.
Trademarks: Composer, Digital Light Processing, DLP, Extensa, and WebCenter
are all trademarks of Texas Instruments Incorporated.
9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 10, 1996, Samsung Electronics Co., Ltd ("Samsung") filed a
lawsuit in the District Court of Fort Bend County, Texas, 268th Judicial
District, against Registrant seeking an unspecified amount of damages,
alleging that Registrant made fraudulent or negligent misrepresentations
to Samsung during the 1990 round of semiconductor licensing negotiations.
Samsung alleges that Registrant's negotiators, verbally and in writing,
assured Samsung that the terms and conditions of Samsung's license would
be no worse than the terms and conditions in the Registrant's license agreement
with Toshiba Corporation.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) 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
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed the following reports on Form 8-K with the Securities
and Exchange Commission during the quarter ended March 31, 1996: Form 8-K
dated January 2, 1996, which included a news release regarding the
Registrant's patent infringement suit against Samsung; Form 8-K dated
January 18, 1996, relating to the 1996 Annual Meeting of Stockholders of
the Registrant; Form 8-K dated January 24, 1996, which included a news
release regarding the Registrant's 1995 financial results; Form 8-K dated
January 25, 1996, which included a form of note and a table of computation
of ratio of earnings to fixed charges and ratio of earnings to combined
fixed charges and preferred stock dividends; Form 8-K dated February 5,
1996, which included a news release regarding the Registrant's patent
license agreement with Fujitsu; and Form 8-K filed March 6, 1996, which
included a news release regarding a Registrant meeting for financial
analysts.
10
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
With the exception of historical information, the matters discussed
or incorporated by reference in this Report on Form 10-Q are forward-looking
statements that involve risks and uncertainties including, but not limited to,
economic conditions, product demand and industry capacity, competitive
products and pricing, manufacturing efficiencies, new product development,
ability to enforce patents, availability of raw materials and critical
manufacturing equipment, new plant startups, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission.
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: /S/ WILLIAM A. AYLESWORTH
William A. Aylesworth
Senior Vice President,
Treasurer and
Chief Financial Officer
Date: April 19, 1996
11
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
- ---------------- ----------------------- --------------
11 Computation of primary and E
fully diluted earnings per
common and common equivalent
share.
12 Computation of Ratio of E
Earnings to Fixed Charges and
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.
27 Financial Data Schedule E
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per-share amounts.)
For Three Months Ended
----------------------
Mar. 31 Mar. 31
1996 1995
-------- --------
Net income................................................... $163,236 $229,990
Add:
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted............... 345 407
-------- --------
Adjusted net income.......................................... $163,581 $230,397
======== ========
Earnings per Common and Common Equivalent Share:
Weighted average common shares outstanding................... 189,441 185,676
Weighted average common equivalent shares:
Stock option and compensation plans...................... 2,225 2,254
Convertible debentures................................... 2,493 2,984
-------- --------
Weighted average common and common equivalent shares......... 194,159 190,914
======== ========
Earnings per Common and Common Equivalent Share.............. $ 0.84 $ 1.21
Earnings per Common Share Assuming Full Dilution:
Weighted average common shares outstanding................... 189,441 185,676
Weighted average common equivalent shares:
Stock option and compensation plans...................... 2,377 2,800
Convertible debentures................................... 2,493 2,984
-------- --------
Weighted average common and common equivalent shares......... 194,311 191,460
======== ========
Earnings per Common Share Assuming Full Dilution............. $ 0.84 $ 1.20
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)
For Three Months
Ended Mar. 31
----------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
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.......$ (250) $ 433 $ 755 $1,098 $1,679 $ 364 $ 332
Add interest attributable to
rental and lease expense............. 43 42 38 40 41 10 9
----- ----- ----- ----- ----- ----- -----
$ (207) $ 475 $ 793 $1,138 $1,720 $ 374 $ 341
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized).......................$ 59 $ 57 $ 55 $ 58 $ 69 $ 17 $ 19
Interest attributable to rental
and lease expense...................... 43 42 38 40 41 10 9
----- ----- ----- ----- ----- ----- -----
Fixed charges..............................$ 102 $ 99 $ 93 $ 98 $ 110 $ 27 $ 28
===== ===== ===== ===== ===== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges..........................$ 102 $ 99 $ 93 $ 98 $ 110 $ 27 $ 28
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis)............. 34 55 29 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Combined fixed charges and
preferred stock dividends............$ 136 $ 154 $ 122 $ 98 $ 110 $ 27 $ 28
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges......... * 4.8 8.5 11.6 15.6 13.9 12.2
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends.......................... ** 3.1 6.5 11.6 15.6 13.9 12.2
===== ===== ===== ===== ===== ===== =====
* Not meaningful. The coverage deficiency was $309 million in 1991.
** Not meaningful. The coverage deficiency was $343 million in 1991.
5
1,000,000
3-MOS
DEC-31-1996
MAR-31-1996
1,279
52
2,057
60
1,151
5,068
6,040
2,524
9,122
2,597
1,105
0
0
190
4,041
9,122
3,076
3,076
2,187
2,187
263
0
12
240
77
163
0
0
0
163
0.84
0
