SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ----------------------------- ------------------------
Common Stock, par value $1.00 New York Stock Exchange
London Stock Exchange
Tokyo Stock Exchange
The Electronical Stock
Exchange Switzerland
Preferred Stock Purchase Rights New York Stock Exchange
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $8,662,000,000 as of January 31, 1996.
189,423,197
---------------------------------------------------------------------
(Number of shares of common stock outstanding as of January 31, 1996)
Parts I, II and IV hereof incorporate information by reference to the
Registrant's 1995 annual report to stockholders. Part III hereof incorporates
information by reference to the Registrant's proxy statement for the 1996
annual meeting of stockholders.
The registrant's annual report on Form 10-K for the year ended
December 31, 1995 is hereby amended and restated in its entirety to
correct the filing made on February 23, 1996 and will be effective for
all purposes as of that date.
Pursuant to the requirements of Rule 12b-15 of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto authorized, on June 19,
1996.
TEXAS INSTRUMENTS INCORPORATED
By: /S/ RICHARD J. AGNICH
---------------------
Richard J. Agnich
Senior Vice President and Secretary
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ----------------------------- ------------------------
Common Stock, par value $1.00 New York Stock Exchange
London Stock Exchange
Tokyo Stock Exchange
The Stock Exchanges of
Zurich, Basle and
Geneva
Preferred Stock Purchase Rights New York Stock Exchange
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $8,662,000,000 as of January 31, 1996.
189,423,197
---------------------------------------------------------------------
(Number of shares of common stock outstanding as of January 31, 1996)
Parts I, II and IV hereof incorporate information by reference to the
Registrant's 1995 annual report to stockholders. Part III hereof incorporates
information by reference to the Registrant's proxy statement for the 1996
annual meeting of stockholders.
PART I
ITEM 1. Business.
General
- -------
Texas Instruments Incorporated (hereinafter the "Registrant,"
including subsidiaries except where the context indicates otherwise) 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, defense systems and
electronics, and digital products. The Registrant also produces metallurgical
materials. In addition, the Registrant's patent portfolio has been
established as an ongoing contributor to the Registrant's revenues. The
Registrant's business is based principally on its broad semiconductor
technology and application of this technology to selected electronic end-
equipment markets. The Registrant from time to time considers acquisitions
and divestitures which may alter its business mix. The Registrant may effect
one or more such transactions at such time or times as the Registrant
determines to be appropriate.
The information with respect to net revenues, profit and
identifiable assets of the Registrant's industry segments and operations
outside the United States, which is contained in the note to the financial
statements captioned "Industry Segment and Geographic Area Operations" on
pages 35-37 of the Registrant's 1995 annual report to stockholders, is
incorporated herein by reference to such annual report.
Components
- ----------
Components consist of semiconductor integrated circuits (such as
digital signal processors, mixed signal and analog circuits, microprocessors/
microcontrollers, applications processors, memories, and digital circuits),
semiconductor discrete devices, semiconductor subassemblies (such as custom
modules for specific applications), and electrical and electronic control
devices (such as motor protectors, starting relays, circuit breakers,
thermostats, sensors, and radio-frequency identification systems).
These components are used in a broad range of products for
industrial end-use (such as computers and peripheral equipment,
telecommunications, instrumentation, and industrial motor controls and
automation equipment), consumer end-use (such as televisions, cameras,
automobiles, home appliances, and residential air conditioning and heating
systems), and government end-use (such as defense and space equipment). The
Registrant sells these components primarily to original equipment
manufacturers principally through its own marketing organizations and to a
lesser extent through distributors.
Defense Systems and Electronics
- -------------------------------
Defense systems and electronics consist of radar systems, navigation
systems, infrared surveillance and fire control systems, defense suppression
missiles, other weapon systems (including antitank and interdiction weapons),
missile guidance and control systems, electronic warfare systems, and other
defense electronic equipment. Sales are made to the U.S. government (either
directly or through prime contractors) and to international customers approved
by the U.S. government.
2
Digital Products
- ----------------
Digital products include software productivity tools, mobile
computing products, printers, and electronic calculators. Subsequent to year-
end 1995, the Registrant reached an agreement to sell substantially all of the
Registrant's custom manufacturing services business.
Digital products are used in a broad range of enterprise-wide, work
group and personal information-based applications. The Registrant markets
these products through various channels, including system suppliers, business
equipment dealers, distributors, retailers, and direct sales to end-users and
original equipment manufacturers.
Metallurgical Materials
- -----------------------
Metallurgical materials include clad metals, precision-engineered
parts and electronic connectors for use in a variety of applications such as
appliances, automobiles, electronic components, and industrial and
telecommunications equipment. These metallurgical materials are primarily
sold directly to original equipment manufacturers.
Competition
- -----------
The Registrant is engaged in highly competitive businesses. Its
competitors include several of the largest companies in the United States,
Asia, and elsewhere abroad as well as many small, specialized companies.
The Registrant is a significant competitor in each of its principal
businesses. Generally, the Registrant's businesses are characterized by
rapidly changing technology which has, throughout the Registrant's history,
intensified the competitive factors, primarily performance and price.
Government Sales
- ----------------
Net revenues directly from federal government agencies in the United
States, principally related to the defense systems and electronics segment,
accounted for approximately 8% of the Registrant's net revenues in 1995.
Contracts for government sales generally contain provisions for
cancellation at the convenience of the government. In addition, companies
engaged in supplying military equipment to the government are dependent on
congressional appropriations and administrative allotment of funds, and may be
affected by changes in government policies resulting from various military and
political developments. See "ITEM 3. Legal Proceedings."
Backlog
- -------
The dollar amount of backlog of orders believed by the Registrant to
be firm was $4528 million as of December 31, 1995 and $3913 million as of
December 31, 1994. Approximately 18% of the 1995 backlog (involving defense
systems and electronics) is not expected to be filled within the current year.
The backlog is significant in the business of the Registrant only as an
indication of future revenues which may be entered on the books of account of
the Registrant.
3
Raw Materials
- -------------
The Registrant purchases materials, parts and supplies from a number
of suppliers. The Registrant's silicon materials operation became part of a
joint venture with MEMC Electronic Materials, Inc., in May 1995. The
Registrant retains a minority ownership interest in the joint venture. The
materials, parts and supplies essential to the Registrant's business are
generally available at present and the Registrant believes at this time that
such materials, parts and supplies will be available in the foreseeable
future, although the Registrant has experienced some extended lead times on
certain raw materials, particularly for silicon wafers, because of the rapid
industry growth over the past three years.
Patents and Trademarks
- ----------------------
The Registrant owns many patents in the United States and other
countries in fields relating to its business. The Registrant has developed a
strong, broad-based patent portfolio. The Registrant also has several
agreements with other companies involving license rights and anticipates that
other licenses may be negotiated in the future. The Registrant does not
consider its business materially dependent upon any one patent or patent
license, although taken as a whole, the rights of the Registrant and the
products made and sold under patents and patent licenses are important to the
Registrant's business. As noted above, the Registrant's patent portfolio has
been established as an ongoing contributor to the revenues of the Registrant.
See "ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "ITEM 3. Legal Proceedings."
The Registrant owns trademarks that are used in the conduct of its
business. These trademarks are valuable assets, the most important of which
are "Texas Instruments" and the Registrant's corporate monogram.
Research and Development
- ------------------------
The Registrant's research and development expense was $927 million
in 1995 compared with $689 million in 1994 and $590 million in 1993.
Seasonality
- -----------
The Registrant's revenues are subject to some seasonal variation.
Employees
- ---------
The information concerning the number of persons employed by the
Registrant at December 31, 1995 on page 21 of the Registrant's 1995 annual
report to stockholders is incorporated herein by reference to such annual
report.
4
ITEM 2. Properties.
The Registrant's principal offices are located at 13500 North
Central Expressway, Dallas, Texas. The Registrant owns and leases plants in
the United States and 16 other countries for manufacturing and related
purposes. The following table indicates the general location of the principal
plants of the Registrant and the industry segments which make major use of
them. Except as otherwise indicated, the principal plants are owned by the
Registrant.
Defense
Systems and Digital Metallurgical
Components Electronics Products Materials
---------- ----------- -------- -------------
Dallas, Texas X X X
Austin, Texas X X
Houston, Texas X
Lewisville, Texas X
Lubbock, Texas X
McKinney, Texas X
Plano, Texas(1) X X
Sherman, Texas(1) X X
Temple, Texas X
Attleboro, X X
Massachusetts
Almelo, Netherlands X
Freising, Germany X
Avezzano, Italy(2) X
Baguio, X
Philippines(3)
Hiji, Japan X
Kuala Lumpur, X
Malaysia(1)
Miho, Japan X
Singapore(3) X
Taipei, Taiwan X
____________________
(1)Leased or primarily leased.
(2)Owned, subject to mortgage.
(3)Owned on leased land.
The Registrant's facilities in the United States contained
approximately 18,300,000 square feet as of December 31, 1995, of which
approximately 4,300,000 square feet were leased. The Registrant's facilities
outside the United States contained approximately 7,000,000 square feet as of
December 31, 1995, of which approximately 1,800,000 square feet were leased.
The Registrant believes that its existing properties are in good
condition and suitable for the manufacture of its products. At the end of
1995, the Registrant utilized substantially all of the space in its
facilities.
Leases covering the Registrant's leased facilities expire at varying
dates generally within the next 10 years. The Registrant anticipates no
difficulty in either retaining occupancy through lease renewals, month-to-
month occupancy or purchases of leased facilities, or replacing the leased
facilities with equivalent facilities.
5
ITEM 3. Legal Proceedings.
On January 1, 1996, the Registrant filed a lawsuit in Federal
District Court for the Eastern District of Texas against Samsung Electronics
Co., Ltd. of Korea, and its two U.S. subsidiaries ("Samsung"), seeking
injunctive relief, alleging that Samsung is infringing several of the
Registrant's patents relating to the manufacture of semiconductor devices,
including DRAMs. Also on that date, Samsung brought a lawsuit in Federal
District Court for the Northern District of Texas seeking injunctive relief
against the Registrant, alleging that the Registrant is infringing several of
Samsung's patents, and seeking a declaratory judgment that certain of the
Registrant's patents are either invalid, not infringed or unenforceable
against Samsung and that certain of the Registrant's intellectual property
licensing practices are unfair. Separately, on January 16, 1996, and
February 12, 1996, respectively, the Registrant and Samsung filed complaints
with the International Trade Commission under Section 337 of the Tariff Act
of 1930, as amended, each alleging that the other is engaged in an unfair
act by importing and selling patent-infringing products in the U.S., and
each seeking a permanent exclusion order forbidding such importation and
sales. See "ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
On July 19, 1991, the Registrant filed a lawsuit in Tokyo District
Court against Fujitsu Limited of Japan ("Fujitsu") seeking injunctive relief,
alleging that Fujitsu's manufacture and sale of certain DRAMs infringe the
Registrant's Japanese patent on the invention of the integrated circuit (the
"Kilby" patent). Concurrently, Fujitsu brought a lawsuit in the same court
against the Registrant, seeking a declaration that Fujitsu is not infringing
the Kilby patent. On August 31, 1994, the district court ruled that Fujitsu's
production of 1-megabit and 4-megabit DRAMs and 32K EPROMs does not infringe
the Kilby patent. The Registrant has appealed the court's decision to the
Tokyo High Court.
The Registrant is included among a number of U.S. defense
contractors which are currently the subject of U.S. government investigations
regarding alleged procurement irregularities. The Registrant is unable to
predict the outcome of the investigations at this time or to estimate the
kinds or amounts of claims or other actions that could be instituted against
the Registrant. Under present government procurement regulations, such
investigations could lead to a government contractor's being suspended or
debarred from eligibility for awards of new government contracts for an
initial period of up to three years. In the current environment, even matters
that seem limited to disputes about contract interpretation can result in
criminal prosecution. While criminal charges against contractors have
resulted from such investigations, the Registrant does not believe such
charges would be appropriate in its case and has not, at any time, lost its
eligibility to enter into government contracts or subcontracts under these
regulations.
The Registrant is involved in various investigations and proceedings
conducted by the federal Environmental Protection Agency and certain state
environmental agencies regarding disposal of waste materials. Although the
factual situations and the progress of each of these matters differ, the
Registrant believes that the amount of its liability will not have a material
adverse effect upon its financial position or results of operations and, in
most cases, the Registrant's liability will be limited to sharing clean-up or
other remedial costs with other potentially responsible parties.
6
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The following is an alphabetical list of the names and ages of the
executive officers of the Registrant and the positions or offices with the
Registrant presently held by each person named:
Name Age Position
Richard J. Agnich 52 Senior Vice President, Secretary
and General Counsel
William A. Aylesworth 53 Senior Vice President, Treasurer
and Chief Financial Officer
Gary D. Clubb 49 Executive Vice President (President,
Defense Systems & Electronics
Group)
Thomas J. Engibous 43 Executive Vice President (President,
Semiconductor Group)
William F. Hayes 52 Executive Vice President
Jerry R. Junkins 58 Director; Chairman of the Board,
President and Chief Executive
Officer
Marvin M. Lane, Jr. 61 Vice President and Corporate
Controller
David D. Martin 56 Executive Vice President
William B. Mitchell 60 Director; Vice Chairman
Charles F. Nielson 58 Vice President
Elwin L. Skiles, Jr. 54 Vice President
William P. Weber 55 Director; Vice Chairman
The term of office of each of the above listed officers is from the
date of his election until his successor shall have been elected and qualified
and the most recent date of election of each of them was April 20, 1995.
Messrs. Agnich, Aylesworth, Junkins, Lane, Martin, Mitchell, Nielson, and
Weber have served as officers of the Registrant for more than five years.
Messrs. Clubb, Engibous, Hayes, and Skiles have served as officers of the
Registrant since 1993, 1993, 1991, and 1992, respectively; and they have been
employees of the Registrant for more than five years.
7
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information which is contained in the note to the financial
statements captioned "Common Stock Prices and Dividends" on page 38 of the
Registrant's 1995 annual report to stockholders, and the information
concerning the number of stockholders of record at December 31, 1995 on
page 21 of such annual report, are incorporated herein by reference to such
annual report.
ITEM 6. Selected Financial Data.
The "Summary of Selected Financial Data" for the years 1991 through
1995 which appears on page 21 of the Registrant's 1995 annual report to
stockholders is incorporated herein by reference to such annual report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Letter to the Stockholders on pages 3-7 of the Registrant's 1995
annual report to stockholders and the information contained under the caption
"Management Discussion and Analysis of Financial Condition and Results of
Operations" on pages 22-25 of such annual report are incorporated herein by
reference to such annual report.
ITEM 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Registrant at
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 and the report thereon of the independent auditors, on pages
26-39 of the Registrant's 1995 annual report to stockholders, are incorporated
herein by reference to such annual report.
The "Quarterly Financial Data" on page 39 of the Registrant's 1995
annual report to stockholders is also incorporated herein by reference to such
annual report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
8
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information with respect to directors' names, ages, positions,
term of office and periods of service, which is contained under the caption
"Nominees for Directorship" in the Registrant's proxy statement for the 1996
annual meeting of stockholders, and the information contained in the second
paragraph under the caption "Other Matters" in such proxy statement, are
incorporated herein by reference to such proxy statement.
Information concerning executive officers is set forth in Part I
hereof under the caption "Executive Officers of the Registrant."
ITEM 11. Executive Compensation.
The information which is contained under the captions "Directors
Compensation" and "Executive Compensation" in the Registrant's proxy statement
for the 1996 annual meeting of stockholders is incorporated herein by
reference to such proxy statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning (a) the only persons that have reported
beneficial ownership of more than 5% of the common stock of the Registrant,
and (b) the ownership of the Registrant's common stock by the Chief Executive
Officer and the four other most highly compensated executive officers, and all
executive officers and directors as a group, which is contained under the
caption "Voting Securities" in the Registrant's proxy statement for the 1996
annual meeting of stockholders, is incorporated herein by reference to such
proxy statement. The information concerning ownership of the Registrant's
common stock by each of the directors, which is contained under the caption
"Nominees for Directorship" in such proxy statement, is also incorporated
herein by reference to such proxy statement.
The aggregate market value of voting stock held by non-affiliates of
the Registrant shown on the cover page hereof excludes the shares held by the
Registrant's directors, some of whom disclaim affiliate status, executive vice
presidents and senior vice presidents. These holdings were considered to
include shares credited to certain individuals' profit sharing accounts.
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
9
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Financial Statement
Schedules:
The financial statements and financial statement schedules are
listed in the index on page 15 hereof.
3. Exhibits:
Designation of
Exhibit in
this Report Description of Exhibit
-------------- -------------------------------------------------
3(a) Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(b) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(c) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(d) Certificate of Designations relating to the
Registrant's Participating Cumulative Preferred
Stock (incorporated by reference to Exhibit 3(d)
to the Registrant's Annual Report on Form 10-K
for the year 1993).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into the
Registrant (incorporated by reference to Exhibit
3(e) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(f) Certificate of Elimination of Designations of
Preferred Stock of the Registrant (incorporated
by reference to Exhibit 3(f) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(g) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10
4(a)(i) Rights Agreement dated as of June 17, 1988
between the Registrant and First Chicago Trust
Company of New York, formerly Morgan Shareholder
Services Trust Company, as Rights Agent, which
includes as Exhibit B the form of Rights
Certificate (incorporated by reference to Exhibit
4(a)(i) to the Registrant's Annual Report on Form
10-K for the year 1993).
4(a)(ii) Assignment and Assumption Agreement dated as of
September 24, 1992 among the Registrant, First
Chicago Trust Company of New York, formerly
Morgan Shareholder Services Trust Company, and
Harris Trust and Savings Bank (incorporated by
reference to Exhibit 4(a)(i) to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992).
4(b) The Registrant agrees to provide the Commission,
upon request, copies of instruments defining the
rights of holders of long-term debt of the
Registrant and its subsidiaries.
10(a) Texas Instruments Annual Incentive Plan as
amended November 30, 1995.*
10(b)(i) TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(ii) to the
Registrant's Annual Report on Form 10-K for the
year 1994).*
10(b)(ii) Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii)
to the Registrant's Annual Report on Form 10-K
for the year 1994).*
10(c) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(a)(ii)
to the Registrant's Annual Report on Form 10-K
for the year 1993).*
10(d) Texas Instruments Restricted Stock Unit Plan for
Directors (incorporated by reference to
Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1995).
10(e) Statement of Policy of Registrant's Board of
Directors on Top Officer and Board Member
Retirement Practices (incorporated by reference
to Exhibit 10(b)(vi) to the Registrant's Annual
Report on Form 10-K for the year 1993).*
11 Computation of 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.
11
13 Registrant's 1995 Annual Report to Stockholders.
(With the exception of the items listed in the
index to financial statements and financial
statement schedules herein, and the items
referred to in ITEMS 1, 5, 6, 7 and 8 hereof, the
1995 Annual Report to Stockholders is not to be
deemed filed as part of this report.)
21 List of subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
________________
*Executive Compensation Plans and Arrangements:
Texas Instruments Annual Incentive Plan as amended November 30,
1995.
TI Deferred Compensation Plan (incorporated by reference to Exhibit
10(a)(ii) to the Registrant's Annual Report on Form 10-K for the
year 1994).
Amendment No. 1 to TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(iii) to Registrant's Annual Report on
Form 10-K for the year 1994).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii) to the Registrant's Annual Report on
Form 10-K for the year 1993).
Statement of Policy of Registrant's Board of Directors on Top
Officer and Board Member Retirement Practices (incorporated by
reference to Exhibit 10(b)(vi) to the Registrant's Annual Report on
Form 10-K for the year 1993).
(b) Reports on Form 8-K:
None
"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-K 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.
12
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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/ JERRY R. JUNKINS
--------------------
Jerry R. Junkins
Chairman of the Board,
President and
Chief Executive Officer
Date: February 22, 1996
13
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 22nd day of February,
1996.
Signature Title
*JAMES R. ADAMS Director
- ------------------------------------
James R. Adams
*DAVID L. BOREN Director
- ------------------------------------
David L. Boren
*JAMES B. BUSEY IV Director
- ------------------------------------
James B. Busey IV
- ------------------------------------ Director
Gerald W. Fronterhouse
- ------------------------------------ Director
David R. Goode
/s/ JERRY R. JUNKINS Chairman of the Board; President;
- ------------------------------------ Chief Executive Officer; Director
Jerry R. Junkins
*WILLIAM S. LEE Director
- ------------------------------------
William S. Lee
*WILLIAM B. MITCHELL Vice Chairman; Director
- ------------------------------------
William B. Mitchell
*GLORIA M. SHATTO Director
- ------------------------------------
Gloria M. Shatto
*WILLIAM P. WEBER Vice Chairman; Director
- ------------------------------------
William P. Weber
*CLAYTON K. YEUTTER Director
- ------------------------------------
Clayton K. Yeutter
/s/ WILLIAM A. AYLESWORTH Senior Vice President; Treasurer;
- ------------------------------------ Chief Financial Officer
William A. Aylesworth
/s/ MARVIN M. LANE, JR. Vice President; Corporate
- ------------------------------------ Controller
Marvin M. Lane, Jr.
*By: /s/ WILLIAM A. AYLESWORTH
--------------------------------
William A. Aylesworth
Attorney-in-fact
14
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Page Reference
--------------
Annual
Report to
Form 10-K Stockholders
--------- ------------
Information incorporated by reference
to the Registrant's 1995 Annual Report
to Stockholders:
Consolidated Financial Statements:
Income for each of the three 26
years in the period ended
December 31, 1995
Balance sheet at December 31, 27
1995 and 1994
Cash flows for each of the 28
three years in the period
ended December 31, 1995
Stockholders' equity for each of 29
the three years in the period
ended December 31, 1995
Notes to financial statements 30-39
Report of Independent Auditors 39
Consolidated Schedule for each of the three
years in the period ended December 31, 1995:
II. Allowance for losses 16
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
15
Schedule II
-----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
ALLOWANCE FOR LOSSES
(In Millions of Dollars)
Years Ended December 31, 1995, 1994, and 1993
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
1995 $37 $113 $105 $45
- ---- ==== ==== ==== ====
1994 $42 $80 $85 $37
- ---- ==== ==== ==== ====
1993 $34 $87 $79 $42
- ---- ==== ==== ==== ====
Allowances for losses from uncollectible accounts, returns, etc., are deducted
from accounts receivable in the balance sheet.
16
EXHIBIT INDEX
Designation of
Exhibit in Paper(P) or
this Report Description of Exhibit Electronic(E)
- -------------- ------------------------------------------- -------------
3(a) Restated Certificate of Incorporation of
the Registrant (incorporated by reference to
Exhibit 3(a) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(b) Certificate of Amendment to Restated
Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3(b) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated
Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3(c) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(d) Certificate of Designations relating to
the Registrant's Participating Cumulative
Preferred Stock (incorporated by reference
to Exhibit 3(d) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into
the Registrant (incorporated by reference to
Exhibit 3(e) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(f) Certificate of Elimination of Designations
of Preferred Stock of the Registrant
(incorporated by reference to Exhibit 3(f)
to the Registrant's Annual Report on Form 10-K
for the year 1993).
3(g) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4(a)(i) Rights Agreement dated as of June 17, 1988
between the Registrant and First Chicago
Trust Company of New York, formerly Morgan
Shareholder Services Trust Company, as Rights
Agent, which includes as Exhibit B the form of
Rights Certificate (incorporated by reference
to Exhibit 4(a)(i) to the Registrant's Annual
Report on Form 10-K for the year 1993).
17
4(a)(ii) Assignment and Assumption Agreement dated as
of September 24, 1992 among the Registrant,
First Chicago Trust Company of New York,
formerly Morgan Shareholder Services Trust
Company, and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4(a)(i)
to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1992).
4(b) The Registrant agrees to provide the
Commission, upon request, copies of
instruments defining the rights of holders
of long-term debt of the Registrant and its
subsidiaries.
10(a) Texas Instruments Annual Incentive Plan as E
amended November 30, 1995.*
10(b)(i) TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(ii) to the
Registrant's Annual Report on Form 10-K for the
year 1994).*
10(b)(ii) Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii)
to the Registrant's Annual Report on Form 10-K
for the year 1994).*
10(c) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(a)(ii)
to the Registrant's Annual Report on Form 10-K
for the year 1993).*
10(d) Texas Instruments Restricted Stock Unit Plan for
Directors (incorporated by reference to
Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1995).
10(e) Statement of Policy of Registrant's Board of
Directors on Top Officer and Board Member
Retirement Practices (incorporated by reference
to Exhibit 10(b)(vi) to the Registrant's Annual
Report on Form 10-K for the year 1993).*
11 Computation of earnings per common and common
equivalent share. E
12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends. E
18
13 Registrant's 1995 Annual Report to
Stockholders. (With the exception of the
items listed in the index to financial
statements and financial statement schedules
herein, and the items referred to in ITEMS 1,
5, 6, 7 and 8 hereof, the 1995 Annual Report
to Stockholders is not to be deemed filed as
part of this report.) E
21 List of subsidiaries of the Registrant. E
23 Consent of Ernst & Young LLP. E
24 Powers of Attorney. E
27 Financial Data Schedule. E
________________
*Executive Compensation Plans and Arrangements:
Texas Instruments Annual Incentive Plan as amended November 30,
1995.
TI Deferred Compensation Plan (incorporated by reference to Exhibit
10(a)(ii) to the Registrant's Annual Report on Form 10-K for the
year 1994).
Amendment No. 1 to TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(iii) to Registrant's Annual Report on
Form 10-K for the year 1994).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii) to the Registrant's Annual Report on
Form 10-K for the year 1993).
Statement of Policy of Registrant's Board of Directors on Top
Officer and Board Member Retirement Practices (incorporated by
reference to Exhibit 10(b)(vi) to the Registrant's Annual Report on
Form 10-K for the year 1993).
19
Exhibit 10(a)
-------------
TEXAS INSTRUMENTS ANNUAL INCENTIVE PLAN
As Amended November 30, 1995
The Texas Instruments Annual Incentive Plan is designed to provide an
additional incentive for those employees who are key to the Company's success
in the highly technological and competitive industries in which it operates.
The Plan provides for rewarding certain employees by awards for outstanding
ability and exceptional service based upon the individual's contribution to the
Company.
For purposes of the Plan unless otherwise indicated, the term "Company" shall
mean Texas Instruments Incorporated and its subsidiaries of which substantially
all of the voting stock is owned directly or indirectly by Texas Instruments.
Eligibility
The employees of the Company eligible to receive awards under the Plan shall
consist of the group of employees (including officers and directors) in
management or other key positions specified for each year by the Committee
described below and such other employees as said Committee may designate for
such year. If an employee takes an approved leave of absence or dies prior to
a determination of awards to be made under the Plan for a year in which the
employee was eligible to receive awards under the Plan, such employee on leave
or the estate of such deceased employee shall be eligible to receive awards
under the Plan for such year. Directors who are not full-time or part-time
officers or employees are not eligible to participate in the Plan.
Administration of Plan
The Plan shall be administered by a Committee of the Board of Directors which
shall be known as the Compensation Committee (the Committee) which shall be
appointed by a majority of the whole Board and shall consist of not less than
three directors. The Board may designate one or more directors as alternate
members of the Committee, who may replace any absent or disqualified member at
any meeting of the Committee. A director may serve as a member or alternate
member of the Committee only during periods in which he is a "disinterested
person" as described in Rule 16b-3 under the Securities Exchange Act of 1934,
as in effect from time to time. No member or alternate member of the Committee
shall be eligible, while a member or alternate member, for participation in the
Plan. The Committee shall have full power and authority to construe, interpret
and administer the Plan. It may issue rules and regulations for administration
of the Plan. It shall meet at such times and places as it may determine. A
majority of the members of the Committee shall constitute a quorum and all
decisions of the Committee shall be final, conclusive and binding upon all
parties, including the Company, the stockholders and the employees.
1
The Committee shall have the full and exclusive right to make awards under the
Plan except as otherwise expressly provided in this Plan. In determining the
selection of recipients and the amount or form of any award, the Committee
shall take into consideration the contribution of the recipients during the
fiscal year to the Company's success and such other factors as the Committee
shall determine. The Committee shall have the authority to consult with and
receive recommendations from officers or other executives of the Company with
regard to these matters.
The Committee may delegate such power, authority and rights with respect to the
administration of the Plan as it deems appropriate to one or more members of
the management of the Company (including, without limitation, a committee of
one or more members of management appointed by the Committee); provided,
however, that the Committee shall have the exclusive right to make awards to
employees who are directors or officers of the Company, and that any delegation
to management shall conform with the requirements of the General Corporation
Law of Delaware, as in effect from time to time.
Expenses of Administration
The expenses of the administration of this Plan, including the dividend
equivalents and interest provided in the Plan, shall be borne by the Company
and none of them shall be charged against the Incentive Reserve described
below.
Amendments
The Board of Directors of the Company may, at any time and from time to time,
alter, amend, suspend or terminate the Plan or any part thereof as it may deem
proper and in the best interests of the Company, provided, however, that no
such action shall affect or impair the rights under any award theretofore
granted under the Plan, except that in the case of an employee employed outside
the United States (or his beneficiary) the Board may vary the provisions of the
Plan as it may deem appropriate to conform with local laws, practices and
procedures. Further, unless the stockholders of the Company shall have first
approved thereof, no amendment shall be made which shall increase the maximum
amount which may be credited to the Incentive Reserve described below in any
year.
Awards
Awards may be made from time to time during each year under the Plan by the
Committee or its delegate(s) in amounts which do not exceed the amount then
available in the Incentive Reserve described below. Such awards may be
denominated in cash, in shares of the Company's common stock, or both, and may
be payable in cash or shares, or both, as the Committee may determine.
Scope of the Plan
The Committee shall have the power, in its sole discretion, to determine what
payments to eligible employees shall be deemed to be incentive compensation for
the purposes of this Plan. Awards under the Company's Patent Incentive Award
program shall be deemed not to have been made under this Plan and payments
under the Patent Incentive Award program shall not be charged to the Incentive
Reserve described below. Payments under any incentive plans which operational
organizations of the Company may have from time to time to any employees who
2
are then eligible to receive awards under this Plan shall be charged to the
Incentive Reserve described below. Special payments to employees involved in
unusual transactions (including, without limitation, a sale of a portion of the
business of the Company) shall not be charged to the Incentive Reserve
described below unless otherwise determined by the Committee. Nothing in this
Plan shall be construed as preventing the Company from having from time to time
incentive or other variable compensation plans applicable to employees who are
not then eligible to participate in this Plan, and payments of incentive or
other variable compensation under such plans to such employees shall not be
charged to the Incentive Reserve described below.
Incentive Reserve
For the calendar year 1965 and each of the calendar years thereafter, the Board
of Directors shall cause to be credited to an Incentive Reserve (hereinafter
called the Reserve) an amount determined as follows:
10% of the amount by which the Company's net income for such year exceeds
6% of net capital but not in excess of the amount paid out as dividends on
the common stock of the Company during such year, except that the Board
may in its discretion direct that a lesser amount be credited.
As used in this Plan
1. "Net income" shall mean the amount reported as net income in the
annual statement of income for the year as shown by the annual report
to stockholders plus interest on long-term debt and amounts credited
to the Reserve for such year.
2. "Net capital" shall mean the total of stockholders' equity plus long-
term debt (less current portion) as shown on the balance sheet as of
the end of the year preceding the year for which net income, as above,
is determined plus treasury stock held for the purposes of this Plan.
As soon as practicable after the end of each year, the Company's independent
auditors shall determine and report to the Board of Directors the maximum
amount creditable to the Reserve for that year under the provisions of this
Plan. The Board shall determine the amount to be credited to the Reserve for
such year. Prior to receipt of such report of the auditors, the Board may make
such determination based on an estimate made by the Company's Chief Financial
Officer of the maximum amount creditable, provided that such a determination
shall be effective only upon receipt of the auditors' report by the Secretary
of the Board of Directors and only to the extent of the maximum amount
creditable to the Reserve, as reported by the auditors. The amount determined
by the Board shall be credited to the Reserve as of the close of the year. The
Committee shall promptly be advised of the amount so credited to the Reserve
and of the total amount available in the Reserve (after deducting any unpaid
installments of incentive awards previously granted).
The Committee shall make a determination of awards to be made under the Plan
for each year at such time or times as the Committee shall deem appropriate.
The aggregate of such awards may be less than, but shall not exceed, the total
amount available in the Reserve, except that, after the end of a year and prior
to the Board's determination of an amount to be credited to the Reserve for
that year, the Committee may make awards in excess of the amount available in
the Reserve if such awards are made payable only if an amount adequate to cover
such awards is first credited to the Reserve for such year.
3
If the aggregate of the awards determined by the Committee to be made under the
Plan for a given year shall at any time be less than the total amount available
in the Reserve, the Committee may at any time or times determine that
additional awards be made under the Plan for such year, provided that the
aggregate of all awards for such year shall not exceed the total amount
available in the Reserve, and that all awards for such year shall be determined
on or before December 31 of the following year.
If (i) the amount determined and reported by the Company's independent auditors
as the maximum amount creditable to the Reserve for any year shall for any
reason later prove to have been overstated and (ii) the amount credited to the
Reserve at the close of such year was in excess of the revised maximum amount
creditable to the Reserve for that year, then the amount available at that time
or subsequently in the Reserve shall be reduced by the amount of such excess.
Thus excess credits to the Reserve resulting from such overstatement shall be
corrected exclusively by adjustment of the Reserve then or subsequently
available and not by recourse to any person.
Any balance remaining in the Reserve after making awards for any year shall
continue in the Reserve and be available for awards for future years except to
the extent otherwise directed by the Committee. Any payments that are made by
the Company, and any incentive awards that are granted by, or become
obligations of, the Company, through the assumption by the Company of, or in
substitution for, outstanding awards previously granted by an acquired company
shall not, except in the case of payments made to or incentive awards granted
to employees who are officers or directors of the Company for purposes of
Section 16 of the Securities Exchange Act of 1934, as amended, be charged to
the Reserve.
Payment of Awards
Incentive awards may be made in cash or in Texas Instruments common stock, or
partly in cash and partly in stock as the Committee in its discretion may
determine. Incentive awards made wholly or partly in stock, or any
installments thereof, may be paid wholly or partly in cash as the Committee in
its discretion may determine.
The Company shall make available as and when required a sufficient number of
shares of its common stock for the purpose of this Plan. Such common stock
shall be either authorized and unissued shares or treasury stock.
Authorized and unissued shares and treasury stock shall be valued for the
purpose of awards and charged to the Reserve at the simple average of the high
and the low prices of Texas Instruments common stock on the Composite Tape on
the date the awards are made by the Committee (or if there shall be no trading
on that date, then on the first previous date on which there is such trading).
Authorized and unissued shares and treasury stock shall be valued for the
purpose of payments in cash of awards made in stock, at the simple average of
the high and the low prices of Texas Instruments common stock on the Composite
Tape on the payment date (or if there shall be no trading on that date, then on
the first previous date on which there is such trading).
The Committee may direct the awards to the participants or any of them for any
year to be paid in a single amount or in installments of equal or varying
amounts and may prescribe such terms and conditions concerning payment of such
installments as it deems appropriate, including completion of specific periods
of employment with the Company or achievement of specific goals established by
4
the Committee, as it deems appropriate, provided that such terms and conditions
are not more favorable to a participant than those expressly set forth in this
Plan. The Committee may determine that dividend equivalents or interest, as
applicable, will be payable with respect to any installments of any award. The
Committee may at any time after an incentive award is made amend any such
direction and may amend or delete any such terms and conditions concerning
payment of installments, if the Committee deems it appropriate.
When the obligation to pay an installment or installments of an award has
terminated for any reason, the amounts relating to such installment or
installments shall be added back to the Reserve and shall be available for use
under this Plan.
Appropriate adjustments in incentive awards payable in Texas Instruments common
stock shall be made to give effect to any mergers, consolidations,
acquisitions, stock splits, or other relevant changes in capitalization
occurring after the effective date of this Plan; however, no fractional shares
shall be distributed.
Payments of awards to employees of subsidiaries of the Company shall be paid
directly by such subsidiaries.
Withholding
Whenever a participant is obligated to pay to the Company an amount required to
be withheld under applicable income tax laws in connection with the payment of
stock pursuant to an award under this Plan, such payment may be made (a) in
cash, or (b) to the extent from time to time approved by the Committee, (i) in
Texas Instruments common stock or (ii) partly in cash and partly in Texas
Instruments common stock. For purposes of any payment in Texas Instruments
common stock, such stock shall be valued at the simple average of the high and
low prices of Texas Instruments common stock on the Composite Tape on the date
that the payment in stock becomes taxable (or if there is no trading on that
date, then on the first previous date on which there is such trading).
5
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
------------------------------------------
1995 1994 1993
---------- ---------- ----------
Income before cumulative effect of accounting changes........ $1,088,101 $ 690,902 $ 476,226
Less preferred dividends accrued:
Market auction preferred................................. - - (2,043)
Money market preferred................................... - - (2,028)
Series A conversion preferred............................ - - (16,097)
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............... 1,582 2,413 2,681
---------- ---------- ----------
Adjusted income before cumulative effect
of accounting changes...................................... 1,089,683 693,315 474,836
Cumulative effect of accounting changes...................... - - (4,173)
---------- ---------- ----------
Adjusted net income.......................................... $1,089,683 $ 693,315 $ 470,663
========== ========== ==========
Earnings per Common and Common Equivalent Share:
- -----------------------------------------------
Weighted average common shares outstanding................... 187,644 184,124 171,901
Weighted average common equivalent shares:
Stock option and compensation plans...................... 3,127 2,379 2,643
Convertible debentures................................... 2,860 4,352 4,827
Series A conversion preferred............................ - - 7,840
---------- ---------- ----------
Weighted average common and common equivalent shares......... 193,631 190,855 187,211
========== ========== ==========
Earnings per Common and Common Equivalent Share:
Income before cumulative effect of accounting changes...... $ 5.63 $ 3.63 $ 2.54
Cumulative effect of accounting changes.................... - - (.03)
---------- ---------- ----------
Net Income................................................. $ 5.63 $ 3.63 $ 2.51
========== ========== ==========
Earnings per Common Share Assuming Full Dilution:
- ------------------------------------------------
Weighted average common shares outstanding................... 187,644 184,124 171,901
Weighted average common equivalent shares:
Stock option and compensation plans...................... 3,215 2,399 2,786
Convertible debentures................................... 2,860 4,352 4,827
Series A conversion preferred............................ - - 7,840
---------- ---------- ----------
Weighted average common and common equivalent shares......... 193,719 190,875 187,354
========== ========== ==========
Earnings per Common Share Assuming Full Dilution:
Income before cumulative effect of accounting changes...... $ 5.63 $ 3.63 $ 2.53
Cumulative effect of accounting changes.................... - - (.02)
---------- ---------- ----------
Net income................................................. $ 5.63 $ 3.63 $ 2.51
========== ========== ==========
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)
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
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
Add interest attributable to
rental and lease expense................ 43 42 38 40 41
------ ------ ------ ------ ------
$ (207) $ 475 $ 793 $1,138 $1,720
====== ====== ====== ====== ======
Fixed charges:
Total interest on loans (expensed
and capitalized).......................... $ 59 $ 57 $ 55 $ 58 $ 69
Interest attributable to rental
and lease expense......................... 43 42 38 40 41
------ ------ ------ ------ ------
Fixed charges................................. $ 102 $ 99 $ 93 $ 98 $ 110
====== ====== ====== ====== ======
Combined fixed charges and
preferred stock dividends:
Fixed charges............................. $ 102 $ 99 $ 93 $ 98 $ 110
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
====== ====== ====== ====== ======
Ratio of earnings to fixed charges............ * 4.8 8.5 11.6 15.6
====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred
stock dividends............................. ** 3.1 6.5 11.6 15.6
====== ====== ====== ====== ======
* Not meaningful. The coverage deficiency was $309 million in 1991.
** Not meaningful. The coverage deficiency was $343 million in 1991.
Exhibit 13
----------
To Our Stockholders
Nineteen ninety-five was an outstanding year for our company. We capitalized
on strong semiconductor operating performance and robust worldwide
semiconductor market growth to produce the best financial results in company
history. The people of TI improved productivity by more than 25 percent,
measured in net revenue per employee. We gained significant recognition for
operational excellence, including the European Quality Award, the Singapore
Quality Award, and the U.S. Office of Naval Research Best Manufacturing
Practices Center of Excellence Award. We laid the foundation for moderate
growth in our defense business.
We also established a new vision for Texas Instruments - one that will reshape
our company over the next decade.
Financial highlights. TI's revenues in 1995 were $13.1 billion, up 27 percent
from 1994. Net income was up 57 percent, exceeding $1 billion for the first
time, and earnings per share were up 55 percent, to $5.63.
Semiconductor revenues and profits reached record levels, and productivity
improvements in this business generated output equivalent to the capacity of
one major wafer-fabrication facility for the second consecutive year. Shorter
cycle times and the Defense Department's movement toward commercial practices
helped support an improving revenue trend and stable margins in defense
systems and electronics. TI's materials and controls business experienced
solid growth and record revenues for the second consecutive year. Revenues in
TI's mobile computing business were up substantially in the fourth quarter of
1995, reflecting strong customer reception of the Extensa TM line of value-
priced notebook computers. Our calculator business experienced a record year,
extending its leadership in instructional calculators. Our software business
took actions to streamline operations and focus on strategic areas.
The road ahead. Even as we were achieving these impressive results, we were
also setting in place the goals and roadmaps that will lead our company into
the 21st century.
In our annual report a year ago, we described how the digital revolution is
changing the way people live, learn, and work. If anything, the pace of that
revolution
1995 ANNUAL REPORT 3 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
accelerated in 1995. During the year, we worked to identify the longer term
market environment, the core competencies required to meet our customers'
needs, and the principles that will guide our behavior as we work toward our
goals. Out of this strategy process, we established a new goal for Texas
Instruments: World Leadership in Digital Solutions for the Networked Society.
- - World leadership, because the markets we serve are global. Our customers
and suppliers, the end users of our products, our employees, and even our
stockholders are in all parts of the world, and we must maintain a deep
appreciation of the world's different cultures to succeed.
Our goal of world leadership is not limited to our products; we also
recognize that as one of the world's leading technology companies, we share
responsibility for championing a global economic and political environment
in which the networked society can flourish.
- - Digital solutions describes both our products and services, and our
relationship with our customers. TI's products and services are based on
the collection, processing, transmission, and display of digital
information. We work in partnership with customers and suppliers to create
solutions that make it easy for people to connect with each other and with
information.
- - Our customers and the end users of our products are part of a growing
worldwide networked society, in which hardware, software, networks, and
services are connecting people and information in unprecedented ways.
Why a new set of goals and strategies now? First, although TI's financial
performance has improved substantially in the last three years, we believe
that we have only begun to tap TI's true potential. We believe that the
successful execution of our new strategy will lead to financial performance
that better reflects our capabilities and the growth of our markets. Second,
we bring unique strengths to dynamic and growing markets. We have a strong
position in technologies that are the fundamental enablers of the networked
society, including semiconductors, signal processing, mobile computing,
wireless communications, networking, and digital imaging.
As we achieve this new goal, we will be a fundamentally stronger company than
the TI of today.
TEXAS INSTRUMENTS INCORPORATED 4 1995 ANNUAL REPORT
AND SUBSIDIARIES
We will be one company, with multiple businesses focused on a common
objective. We will make the most of TI's strengths across the company, and we
will allocate resources based on our ability to compete and win at the company
level. We will focus on businesses that expand TI's core competencies in
microelectronics, signal processing and software, in markets where we have the
clear opportunity to be recognized among the industry leaders.
We will develop a superior marketing culture. The essence of this culture is
innovation driven by market foresight - a commitment to go beyond giving
customers what they want, in order to build entirely new markets around a deep
understanding of end users' current and future needs.
TI's most successful businesses couple market foresight with our technology
strengths to provide unique solutions. These include digital signal
processing solutions in high-speed modems, high-speed disk drives, and
wireless communications; precision guidance and night-vision technologies for
defense systems; and instructional calculators for the education market. The
common denominator in these successes has been high market share and above-
average returns. We will build future business strategies on this model.
We will focus on high-growth markets. Over the past three decades, the world
semiconductor market has grown at an average rate of about 15 percent per
year. The semiconductor content of electronic end equipment is increasing
rapidly, and new semiconductor markets rapidly emerging in Asia will rival in
size the markets of Japan and the United States in the next decade. Because
of these factors, we believe that the world semiconductor market will grow at
an average rate of 20 percent or more per year for the remainder of the
decade, including 1996. In the near term, TI will be affected by inventory
corrections and pricing pressure in certain areas of the semiconductor market.
We will invest to win. To accelerate the company's future growth, TI plans to
increase capital expenditures in 1996 to about $2.5 billion, up significantly
from $1.4 billion in 1995. TI research and development will be increased in
1996 to about $1.1 billion to support targeted opportunities in digital signal
processing solutions, advanced memory
1995 ANNUAL REPORT 5 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
[Picture of students from Gunter High School in North Texas describing to
(left to right) Jerry Junkins, Pat Weber and Bill Mitchell their first-place
winning entry in a TI-sponsored program, the Texas BEST (Boosting Engineering,
Science and Technology) competition, where students use hardware and
electronic parts to create remote-controlled robots. Sponsorship of the
program is part of TI's commitment to quality education.]
and microprocessors, digital imaging technology, and wireless transmission of
video, voice and data.
Summary and outlook. For the last three years, the world semiconductor market
has grown at an average annual rate of more than 30 percent. Although we
appear to be entering a period of slower semiconductor industry growth in the
short term, we intend to step up our investments to strengthen TI's long-term
position and to build on the gains we've made during the last three years.
Our progress has provided a solid foundation. But with all that we have
achieved in the past, the most exciting part of TI's story is still ahead.
The networked society offers boundless opportunities for our technology and
our creativity. TI's core competencies and technologies play right at the
heart of the digital revolution. We are in an industry that has the
opportunity to grow faster in the next decade than it has in its previous 30-
year history. And TI is better positioned in products and technologies, in
our global presence, and in our commitment to customers than ever before.
We would like to thank all TI people around the world, whose individual and
collective efforts produced outstanding results in 1995 and laid a strong
foundation for the future. Without question, TI owes its success to the
thousands of TI people who are making the networked society come to life.
This is why we will continue to develop our skills, ensure that we have the
best tools to do the job, develop our leadership, and make the most of our
teams. Every day matters as we work toward World Leadership in Digital
Solutions for the Networked Society.
/s/ Jerry R. Junkins /s/ William B. Mitchell /s/ William P. Weber
Jerry R. Junkins William B. Mitchell William P. Weber
Chairman, President and Vice Chairman Vice Chairman
Chief Executive Officer
David R. Goode, Chairman, President and Chief Executive Officer of Norfolk
Southern Corporation, has been elected a director of Texas Instruments.
- ------------------------------------------------------------------------------
We were profoundly saddened by the death on September 1, 1995, of TI founder
J. Erik Jonsson. Erik served TI and its predecessor company, Geophysical
Service, for more than 50 years as president, chairman, honorary director, and
member of the Board Advisory Council.
Erik was a man of great vision. He embodied the strong ethical and business
principles on which TI is based. He will be remembered for his integrity, his
gentle nature, his wisdom, and his generosity in business, civic, cultural,
educational, and humanitarian endeavors.
1995 ANNUAL REPORT 7 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Summary of Selected Financial Data
Years ended December 31 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Millions of Dollars
Net revenues.......................... $ 13,128 $ 10,315 $ 8,523 $ 7,440 $ 6,784
Operating costs and expenses.......... 11,534 9,232 7,795 7,020 7,033
----------------------------------------------------
Profit (loss) from operations......... 1,594 1,083 728 420 (249)
Other income (expense) net............ 73 4 15 - (14)
Interest on loans..................... 48 45 47 51 41
----------------------------------------------------
Income (loss) before provision for
income taxes and cumulative effect
of accounting changes............... 1,619 1,042 696 369 (304)
Provision for income taxes............ 531 351 220 122 105
----------------------------------------------------
Income (loss) before cumulative
effect of accounting changes........ 1,088 691 476 247 (409)
Cumulative effect of accounting
changes............................. - - (4) - -
----------------------------------------------------
Net income (loss)..................... $ 1,088 $ 691 $ 472 $ 247 $ (409)
====================================================
- ----------------------------------------------------------------------------------------------
Earnings (loss) per common and
common equivalent share:
Income (loss) before cumulative
effect of accounting changes...... $ 5.63 $ 3.63 $ 2.54 $ 1.25 $ (2.70)
Cumulative effect of accounting
changes........................... - - (0.03) - -
----------------------------------------------------
Net income (loss)................... $ 5.63 $ 3.63 $ 2.51 $ 1.25 $ (2.70)
====================================================
Dividends declared per common share... $ .64 $ .47 $ .36 $ .36 $ .36
- ----------------------------------------------------------------------------------------------
Average common and common equivalent
shares outstanding during year,
in thousands........................ 193,631 190,855 187,211 170,621 163,941
- ----------------------------------------------------------------------------------------------
As of December 31 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
Millions of Dollars
Working capital....................... $ 2,330 $ 1,818 $ 1,313 $ 961 $ 813
Property, plant and equipment (net)... 3,187 2,568 2,203 2,133 2,354
Total assets.......................... 9,215 6,989 5,993 5,185 5,009
Long-term debt........................ 804 808 694 909 896
Stockholders' equity.................. 4,095 3,039 2,315 1,947 1,955
- ----------------------------------------------------------------------------------------------
Employees............................. 59,574 56,333 59,048 60,577 62,939
Stockholders of record................ 30,034 28,740 29,129 31,479 35,162
See Notes to Financial Statements and Management Discussion and Analysis of
Financial Condition and Results of Operations.
1995 ANNUAL REPORT 21 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
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 7 of this report and the following additional information:
Change in Change in
orders net revenues
Segment 1995 vs. 1994 1995 vs. 1994
------------------------------------------------------------------------
Components........................... +45% +39%
Defense Systems & Electronics........ - 2% + 1%
Digital Products..................... +14% +11%
------------------------------------------------------------------------
Total.............................. +32% +27%
1995 Results of Operations Compared with 1994
TI's orders for 1995 were $13.7 billion, up 32 percent from $10.4 billion in
1994. Significantly higher semiconductor orders in the components segment
were the primary contributor to the change.
TI's net revenues for 1995 were $13.1 billion, up 27 percent from $10.3
billion in 1994. The increase was due primarily to higher semiconductor
revenues in the components segment, resulting from increased shipments and new
products. Demand was particularly strong for digital signal processors,
mixed-signal products and memory. Profit from operations was $1594 million,
up 47 percent from $1083 million in 1994. Higher semiconductor operating
profits accounted for much of the increase; higher royalties also contributed.
Results for 1995 include a profit sharing accrual of $324 million compared
with $175 million accrued in 1994. Results for 1994 included $132 million in
pretax restructuring and divestiture charges taken in the first quarter.
Net income for the year was $1088 million, compared with $691 million in 1994,
an increase of 57 percent. Earnings per share, after the effect of the two-
for-one stock split announced June 15, 1995, were $5.63, versus $3.63 for
1994. Consistent with its goal of increasing shareholder value, TI posted a
return on invested capital (ROIC) of 24.8 percent, up from 19.5 percent in
1994.
Results for 1995 include significantly higher royalty revenues.
TI's backlog of unfilled orders as of December 31, 1995, was $4528 million, up
$615 million from the end of 1994, due to an increase in semiconductor
backlog.
TI R&D was $927 million for 1995 compared with $689 million in 1994. Capital
expenditures were $1439 million in 1995, compared with $1076 million in 1994.
To accelerate the company's future growth, TI plans to increase capital
expenditures in 1996 to about $2.5 billion, and R&D will be increased in 1996
to about $1.1 billion to support targeted opportunities in digital signal
processing solutions, advanced memory and microprocessors, digital imaging
technology, and wireless transmission of video, voice and data.
Depreciation for 1995 was $756 million, compared with $665 million in 1994.
Depreciation in 1996 is expected to be about $1 billion.
Components Segment: Orders in the components segment were up 45 percent for
the year, and revenues up 39 percent from 1994, with particular strength in
semiconductors, which grew faster than the segment. Components segment
profits were up 66 percent, primarily due to improved semiconductor
manufacturing productivity and higher royalties.
Semiconductor orders in the fourth quarter of 1995 were up strongly from a
year ago, but down slightly from the prior
[Net Revenues Graph showing $13.1 billion in net revenues in 1995, $10.3
billion in net revenues in 1994, and $8.5 billion in net revenues in 1993.
Includes a caption which reads as follows: "Net revenues increased 27% in
1995 and 21% in 1994. The increase in 1995 was due primarily to higher
semiconductor revenues in the components segment."]
[Profit from Operations Graph showing $1,594 million of profit from operations
in 1995, $1,083 million of profit from operations in 1994, and $728 million of
profit from operations in 1993. Includes a caption which reads as follows:
"Profit from operations increased 47% in 1995 and 49% in 1994. Higher
semiconductor profits accounted for much of the increase; higher royalties
also contributed."]
TEXAS INSTRUMENTS INCORPORATED 22 1995 ANNUAL REPORT
AND SUBSIDIARIES
quarter, reflecting some buildup in customer inventories of semiconductors and
pricing pressures, particularly for dynamic random access memories (DRAMs) and
standard logic products. Semiconductor revenues reached record levels for the
year, primarily due to growth in memory and application specific products.
Profits, up substantially in 1995 over 1994, also reached record levels.
Semiconductor operating margins improved in 1995, primarily due to increased
manufacturing productivity.
In the near term, TI will be affected by inventory corrections and pricing
pressures in certain areas of the semiconductor market. The company's DRAM
joint ventures, which produce about 75 percent of the DRAMs marketed by TI,
will help reduce the volatility of these market conditions on TI. However,
costs associated with new semiconductor wafer fabrication facilities will
impact the first half of 1996, with little incremental revenue to offset these
costs until the second half of the year. TI believes that industry demand for
memory will continue to experience solid growth in 1996, despite near-term
inventory corrections and price declines.
Over the past three decades, the world semiconductor market has grown at an
average rate of about 15 percent per year. The semiconductor content of
electronic end equipment is increasing rapidly, and new semiconductor markets
are rapidly emerging in Asia that will rival the size of major markets like
Japan and the U.S. in the next decade. Because of these factors, TI believes
the world semiconductor market will grow on average 20 percent or more per
year, including 1996.
Defense Systems & Electronics Segment: In TI's defense systems and
electronics segment, 1995 orders, revenues and margins were essentially flat
with 1994.
For 1995, increased shipments of Paveway weapons and emerging programs more
than offset reduced shipments of HARM missiles. Success in 1995 lays the
foundation for moderate growth for this business in the future.
During 1995, TI completed three small defense acquisitions that will
strengthen the company's capabilities in mission planning, logistics
management and digital battlefield technologies.
Digital Products Segment: Orders in TI's digital products segment were up 14
percent in 1995, and revenues up 11 percent, compared with 1994. The segment
operated at a loss during the year, due to increased marketing expenses and
intense price competition in notebook computers, as well as continued
investments and new product development in communications and electronic
systems, and in the software business.
TI significantly increased marketing investments in the notebook computer
business to increase brand awareness and aggressively communicate a strategic
shift that emphasizes mobility and connectivity in the networked society.
These investments, coupled with intense price competition, caused the business
to operate at a loss for the year. The high levels of marketing investment
and new product development necessary to improve the competitiveness of this
business are expected to constrain its near-term financial performance. TI
software also operated at a loss for the year.
[1995 Segment Net Revenues Pie Chart showing that 72% or $9,480 million of
1995 net revenues were from the components segment, 13% or $1,740 million of
1995 net revenues were from the defense systems & electronics segment, 14% or
$1,852 million of 1995 net revenues were from the digital products segment,
and 1% or $183 million of 1995 net revenues were from the metallurgical
materials segment. Includes a caption which reads as follows: "Record
semiconductor revenues within the components segment were due primarily to
growth in memory and application specific products."]
[Capital Expenditures Graph showing $1,439 million of capital expenditures in
1995, $1,076 million of capital expenditures in 1994, and $730 million of
capital expenditures in 1993. Includes a caption which reads as follows: "To
accelerate the company's future growth, TI plans to increase capital
expenditures in 1996 to about $2.5 billion, up significantly from $1.4 billion
in 1995."]
1995 ANNUAL REPORT 23 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Management Discussion and Analysis of Financial Condition and Results of
Operations
(continued)
Subsequent to year-end 1995, the company reached an agreement to sell
substantially all of its custom manufacturing services business.
Intellectual Property: TI previously reported that most of the company's
semiconductor patent-license agreements would expire at the end of 1995 or
early in 1996. Remaining licenses, which have expiration dates ranging from
1998 to 2001, will provide ongoing royalties, and TI continues to expect a
significant ongoing stream of royalty revenue throughout the remainder of the
decade.
As previously announced, four licenses expired at the end of 1995. TI does
not accrue royalties in the absence of agreements. Accrued royalty revenue
from these licenses contributed about $108 million to revenues in the fourth
quarter of 1995, principally attributable to Samsung Electronics Co., Ltd. of
Korea. These licenses, except for the license with Fujitsu Limited of Japan,
have not yet been renewed. The new license with Fujitsu runs until the end of
2005 and, like the expired license, excludes TI's Kilby patent. Annual
payments to TI under the new license will be substantially greater than the
annual payments under the prior license. Payments from Fujitsu do not
represent a significant portion of TI's total royalty revenue.
Additionally, several licenses will expire at the end of the first quarter of
1996. Royalty revenue from these licenses was about $40 million in the fourth
quarter of 1995. The expiration of these licenses will have no effect on
first quarter 1996 royalty revenue.
Negotiations continue for renewal of expired and expiring licenses. Also, the
company will continue negotiations with computer manufacturers in an effort to
reach additional computer systems licenses. However, these negotiations by
their nature are not predictable as to outcome or timing.
As previously announced, following extensive negotiations with Samsung and the
expiration of its license, TI filed suit against Samsung and its two U.S.
subsidiaries, charging them with patent infringement. In addition to
unspecified monetary damages, TI is asking the court to issue a permanent
injunction barring Samsung from using TI's patents. The litigation was filed
in the Federal District Court for the Eastern District of Texas, Marshall
Division, alleging violation of several patents involved in the manufacture of
semiconductor devices, including DRAMs.
Samsung has filed suit against TI in the Federal District Court for the
Northern District of Texas, Dallas Division, alleging that TI infringes
several Samsung patents, seeking declaratory judgment that several TI patents
are invalid or not infringed, and alleging unfair trade practice in TI's
licensing policy. Separately, TI and Samsung have filed complaints with the
International Trade Commission.
Also as previously reported, in 1994, the district court in Tokyo ruled that
Fujitsu's production of 1-megabit and 4-megabit DRAMs and 32K EPROMs does not
infringe the company's Kilby patent. The company has appealed the court's
decision to the Tokyo High Court. The decision should not have any
significant effect on existing licenses. As in prior years, TI's negotiations
for renewal of expired and expiring licenses are dependent on the strength of
the company's entire patent portfolio and not any single patent.
[Research and Development Expense Graph showing $927 million in research and
development expense in 1995, $689 million in research and development expense
in 1994, and $590 million in research and development expense in 1993.
Includes a caption which reads as follows: "R&D will be increased in 1996
to about $1.1 billion to support targeted opportunities, such as digital
signal processing solutions and digital imaging technology."]
[Debt-to-Total-Capital Ratio Graph showing a .17 debt-to-total-capital ratio
for 1995, a .21 debt-to-total-capital ratio for 1994, and a .28 debt-to-total-
capital ratio for 1993. Includes a caption which reads as follows: "Despite
an aggressive capital expenditure program, TI's financial condition remains
strong as reflected in its debt-to-total-capital ratio."]
TEXAS INSTRUMENTS INCORPORATED 24 1995 ANNUAL REPORT
AND SUBSIDIARIES
Financial Condition: TI's financial condition remains strong. Cash flow from
operating activities net of additions to property, plant and equipment was a
positive $228 million for year 1995. During the year, cash and cash
equivalents plus short-term investments increased by $263 million to $1553
million. In January 1995 the company reduced to zero (from $125 million) the
outstanding balance of its asset securitization agreement, and terminated this
agreement effective January 30, 1995. TI's year-end 1995 debt-to-total-
capital ratio of .17 is down .04 from the year-end 1994 value.
Unused authorizations for future capital expenditures were $1654 million at
December 31, 1995. TI plans to raise capital expenditures in 1996 to about
$2.5 billion, up from $1.4 billion in 1995. The company is considering
various debt financing alternatives in addition to existing cash balances as
sources of funding for these expenditures. In this regard, on February 2,
1996, the company issued $300 million of 6.125 percent notes due 2006.
The company maintains unused lines of credit to support commercial paper
borrowing and to provide additional liquidity. Unused lines of credit were
approximately $538 million at December 31, 1995. Of this amount, $440 million
was available to support commercial paper borrowing.
The company believes that its financial condition provides the foundation for
continued support of the programs essential to TI's future.
1994 Results of Operations Compared with 1993
TI's orders for 1994 were $10.4 billion, up 21 percent from $8.6 billion in
1993. Significantly higher semiconductor orders in the components segment
were the primary contributor to the change. Defense systems and electronics
orders increased due primarily to the timing of orders.
TI's net revenues for 1994 were $10.3 billion, up 21 percent from $8.5 billion
in 1993. The increase was due primarily to higher semiconductor revenues in
the components segment, resulting from increased shipments and new products.
Profit from operations was $1083 million in 1994, up 49 percent from $728
million in 1993. Higher semiconductor operating profits accounted for much of
the increase; higher royalties also contributed. Results for 1994 included a
profit-sharing accrual of $175 million compared with $83 million accrued in
1993.
Net income for the year was $691 million, compared with $472 million for 1993.
Results for the year included one-time royalty revenues of $73 million,
compared with $90 million in 1993. Results also included $132 million in
pretax restructuring and divestiture charges taken in the first quarter of
1994, compared with $23 million in pretax consolidation charges taken in the
fourth quarter of 1993.
The income tax provision for 1994 was for U.S. and non-U.S. taxes. Non-U.S.
taxes included a benefit from tax loss carry forward utilization reduced by
certain non-U.S. taxes and losses for which no benefit was recognized. TI's
income tax rate for the year was 33.7 percent. For 1993, the provision was
net of an increase in deferred tax assets for the effect of the increase in
the U.S. statutory rate.
TI's backlog of unfilled orders as of December 31, 1994, was $3913 million, up
$108 million from the end of 1993, due to increases in semiconductor backlog.
TI R&D was $689 million for 1994, compared with $590 million for 1993.
Customer-funded R&D was $356 million in 1994, compared with $391 million in
1993.
Capital expenditures were $1076 million in 1994, compared with $730 million in
1993.
Depreciation for 1994 was $665 million, compared with $617 million in 1993.
Components Segment: Orders in the components segment were up 27 percent for
the year, and revenues up 33 percent, from 1993. Components segment profit
increased substantially, primarily because of improved semiconductor
manufacturing productivity and higher royalties.
Defense Systems and Electronics Segment: In TI's defense systems and
electronics segment, 1994 orders were up 11 percent from 1993 due to timing of
orders. Revenues were down 7 percent from 1993, primarily because of reduced
shipments of mature production programs. Margins for the year were
essentially flat with 1993.
Digital Products Segment: Orders in TI's digital products segment were up 10
percent in 1994, and revenues up 14 percent, compared with 1993. The segment
operated at a profit for the year, with royalty revenues and profits from the
personal productivity products business more than offsetting the divestiture
charges taken in the first quarter of 1994.
Intellectual Property: During 1994, TI reached new semiconductor patent-
license agreements with Micron Technology Inc. and GoldStar Electron Co., Ltd.
1995 ANNUAL REPORT 25 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts)
For the years ended December 31
-------------------------------
Income 1995 1994 1993
- ------------------------------------------------------------------------------------------
Net revenues........................................... $13,128 $10,315 $8,523
-------------------------------
Operating costs and expenses:
Cost of revenues..................................... 9,318 7,471 6,274
Marketing, general and administrative................ 1,707 1,393 1,247
Employees' retirement and profit sharing plans....... 509 368 274
-------------------------------
Total.............................................. 11,534 9,232 7,795
-------------------------------
Profit from operations................................. 1,594 1,083 728
Other income (expense) net............................. 73 4 15
Interest on loans...................................... 48 45 47
-------------------------------
Income before provision for income taxes and
cumulative effect of accounting changes.............. 1,619 1,042 696
Provision for income taxes............................. 531 351 220
-------------------------------
Income before cumulative effect of accounting changes.. 1,088 691 476
Cumulative effect of accounting changes................ - - (4)
-------------------------------
Net income............................................. $ 1,088 $ 691 $ 472
===============================
Earnings per common and common equivalent share:
Income before cumulative effect of accounting
changes............................................ $ 5.63 $ 3.63 $ 2.54
Cumulative effect of accounting changes.............. - - (0.03)
-------------------------------
Net income........................................... $ 5.63 $ 3.63 $ 2.51
===============================
See accompanying notes.
TEXAS INSTRUMENTS INCORPORATED 26 1995 ANNUAL REPORT
AND SUBSIDIARIES
December 31
--------------
Balance Sheet 1995 1994
- -----------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents............................................ $1,364 $ 760
Short-term investments............................................... 189 530
Accounts receivable, less allowance for losses of
$45 million in 1995 and $37 million in 1994........................ 2,320 1,442
Inventories (net of progress billings)............................... 1,135 882
Prepaid expenses..................................................... 57 66
Deferred income taxes................................................ 453 337
--------------
Total current assets............................................... 5,518 4,017
--------------
Property, plant and equipment at cost.................................. 5,631 4,895
Less accumulated depreciation........................................ (2,444) (2,327)
--------------
Property, plant and equipment (net)................................ 3,187 2,568
--------------
Deferred income taxes.................................................. 229 243
Other assets........................................................... 281 161
--------------
Total assets........................................................... $9,215 $6,989
==============
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt..................... $ 27 $ 12
Accounts payable and accrued expenses................................ 2,573 1,877
Income taxes payable................................................. 170 56
Accrued retirement and profit sharing contributions.................. 418 254
--------------
Total current liabilities.......................................... 3,188 2,199
--------------
Long-term debt......................................................... 804 808
Accrued retirement costs............................................... 801 740
Deferred credits and other liabilities................................. 327 203
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: 1995 - 189,526,939; 1994 - 92,786,992.............. 190 93
Paid-in capital...................................................... 1,081 1,041
Retained earnings.................................................... 2,881 1,912
Less treasury common stock at cost.
Shares: 1995 - 138,129; 1994 - 104,170............................ (12) (6)
Other................................................................ (45) (1)
--------------
Total stockholders' equity......................................... 4,095 3,039
--------------
Total liabilities and stockholders' equity............................... $9,215 $6,989
==============
See accompanying notes.
1995 ANNUAL REPORT 27 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts)
For the years ended December 31
-------------------------------
Cash Flows 1995 1994 1993
- ----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income before cumulative effect of accounting
changes.............................................. $1,088 $ 691 $ 476
Depreciation........................................... 756 665 617
Deferred income taxes.................................. (46) (12) (59)
Net currency exchange losses........................... 6 3 4
(Increase) decrease in working capital (excluding
cash and cash equivalents, short-term investments,
deferred income taxes, and loans payable and
current portion long-term debt):
Accounts receivable.............................. (870) (197) (258)
Inventories...................................... (253) (60) (88)
Prepaid expenses................................. 9 (9) (3)
Accounts payable and accrued expenses............ 677 330 37
Income taxes payable............................. 112 (67) 27
Accrued retirement and profit sharing
contributions.................................. 171 111 94
Increase (decrease) in noncurrent accrued retirement
costs............................................... (2) (8) 21
Other.................................................. 19 85 66
---------------------------
Net cash provided by operating activities................ 1,667 1,532 934
Cash flows from investing activities:
Additions to property, plant and equipment............. (1,439) (1,076) (730)
Purchases of short-term investments.................... (733) (779) (616)
Sales and maturities of short-term investments......... 1,076 732 635
---------------------------
Net cash used in investing activities.................... (1,096) (1,123) (711)
Cash flows from financing activities:
Additions to loans payable............................. 12 40 35
Payments on loans payable.............................. - (41) (72)
Additions to long-term debt............................ 24 1 14
Payments on long-term debt............................. (12) (88) (15)
Redemptions of auction-rate preferred stock............ - - (150)
Dividends paid on common and preferred stock........... (111) (79) (86)
Sales and other common stock transactions.............. 111 110 100
Other.................................................. (1) (2) 6
---------------------------
Net cash provided by (used in) financing activities...... 23 (59) (168)
Effect of exchange rate changes on cash.................. 10 6 (7)
---------------------------
Net increase in cash and cash equivalents................ 604 356 48
Cash and cash equivalents at beginning of year........... 760 404 356
--------------------------
Cash and cash equivalents at end of year................. $1,364 $ 760 $ 404
===========================
See accompanying notes.
TEXAS INSTRUMENTS INCORPORATED 28 1995 ANNUAL REPORT
AND SUBSIDIARIES
Market
Auction/
Money Series A
Market Conversion Treasury
Preferred Preferred Common Paid-In Retained Common
Stockholders' Equity Stock Stock Stock Capital Earnings Stock Other
- ------------------------------------------------------------------------------------------------------
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 ($5.45 per share)...... (14)
Common stock ($.36 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)
1994
- ----
Net income....................... 691
Dividends declared on common
stock ($.47 per share)....... (86)
Common stock issued:
To profit sharing trusts..... 31
On exercise of stock options. 2 60 3
Other stock transactions, net.. 18 (4)
Pension liability adjustment... 10
Cash investments adjustment.... (1)
------------------------------------------------------------------
Balance, December 31, 1994......... - - 93 1,041 1,912 (6) (1)
1995
- ----
Net income....................... 1,088
Dividends declared on common
stock ($.64 per share)......... (119)
Two-for-one common stock split... 94 (94)
Common stock issued:
On exercise of stock options... 3 81 6
On conversion of debentures.... 20
Other stock transactions, net.... 33 (12)
Pension liability adjustment..... (45)
Cash investments adjustment...... 1
------------------------------------------------------------------
Balance, December 31, 1995......... $ - $ - $ 190 $1,081 $2,881 $ (12) $ (45)
==================================================================
See accompanying notes.
1995 ANNUAL REPORT 29 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Notes to Financial Statements Accounting Policies and Practices
- ------------------------------------------------------------------------------
Effective January 1, 1994, the company adopted SFAS No. 115, which required
that cash equivalent and short-term investment debt securities be stated at
fair value, instead of the lower of cost or fair value. This adoption had
no material effect on the company's financial statements. Effective
January 1, 1993, the company adopted SFAS No. 106, which required the accrual
of expected retiree health care benefit costs during the employees' working
careers, and SFAS No. 109, which required increased recording of deferred
income tax assets. This resulted in a 1993 charge of $294 million ($1.57 per
share) for SFAS No. 106 and a credit of $290 million ($1.54 per share) for
SFAS No. 109, for the cumulative effect of the accounting changes.
The consolidated financial statements include the accounts of all
subsidiaries. The preparation of financial statements requires the use of
estimates from which final results may vary. 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 forward currency exchange
contracts to hedge net balance sheet exposures are charged or credited on a
current basis to other income (expense) net. Gains and losses from forward
currency exchange contracts and interest rate swaps 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.
Revenues from semiconductor and other commercial products and services are
generally recognized as products are shipped or services are rendered.
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 long-term cost reimbursement contracts are recorded as costs
are incurred and include estimated earned fees. 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.
Advertising costs are expensed as incurred. Advertising expense was $133
million and $88 million in 1995 and 1994.
Earnings per common and common equivalent share are based on average common
and common equivalent shares outstanding (193,630,826 shares, 190,854,565
shares and 187,210,960 shares for 1995, 1994 and 1993). Shares issuable upon
exercise of dilutive stock options and upon conversion of dilutive convertible
debentures and, for 1993, conversion preferred stock are included in average
common and common equivalent shares outstanding. In computing per-share
earnings, net income is reduced by $20 million in 1993 for dividends accrued
on preferred stock, and increased by $2 million in 1995 and 1994, and $19
million in 1993 for interest (net of tax and profit sharing effect) and
dividends on the convertible debentures and conversion preferred stock
considered dilutive common stock equivalents. Share amounts have been
retroactively adjusted for the two-for-one stock split in 1995.
Cash Equivalents and Short-Term Investments
- ------------------------------------------------------------------------------
Debt securities with original maturities within three months are considered
cash equivalents. Debt securities with original maturities beyond three
months have remaining maturities within 13 months and are considered short-
term investments. These cash equivalent and short-term investment debt
securities are available for sale and stated at fair value, which approximates
their specific amortized cost. Adjustments to fair value are recorded as an
increase or decrease in stockholders' equity. At December 31, 1994, this
adjustment was a decrease of $1 million. As of December 31, 1995, these debt
securities consisted primarily of the following types: U.S. government ($205
million), corporate ($667 million), and asset-backed commercial paper ($405
million). At December 31, 1994, these debt securities consisted primarily of
the following types: U.S. government ($217 million), U.S. state and
municipalities ($187 million), corporate ($434 million), and asset-backed
commercial paper ($154 million). Gross realized and unrealized gains and
losses for each of these security types were immaterial in 1995 and 1994.
Proceeds from sales of these cash equivalent and short-term investment debt
securities in 1995 and 1994 were $190 million and $75 million.
Inventories
- ------------------------------------------------------------------------------
Millions of Dollars
-------------------
1995 1994
-------------------
Raw materials and purchased parts..................... $ 299 $ 237
Work in process....................................... 607 553
Finished goods........................................ 434 318
-------------------
Inventories before progress billings.................. 1,340 1,108
Less progress billings................................ (205) (226)
-------------------
Inventories (net of progress billings)................ $1,135 $ 882
===================
Approximately 26% and 31% of the December 31, 1995 and 1994 inventories
before progress billings related to long-term contracts.
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 esti-
TEXAS INSTRUMENTS INCORPORATED 30 1995 ANNUAL REPORT
AND SUBSIDIARIES
mated average cost of all units to be produced under existing contracts 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.
To secure access to additional semiconductor plant capacity, TI participates
in several joint ventures formed to construct and operate semiconductor
manufacturing facilities. 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 co-venturers have the
right to buy a portion of the output from TI. Under the ventures' financing
arrangements, the venturers have provided certain debt and other guarantees.
At December 31, 1995 and 1994, TI was contingently liable for an aggregate of
$40 million and $46 million of such guarantees. Inventory purchases from the
ventures aggregated $1,779 million in 1995, $908 million in 1994 and $356
million in 1993. Receivables from and payables to the ventures were $25
million and $223 million at December 31, 1995, and $1 million and $94 million
at December 31, 1994.
The purpose of the joint ventures is to provide semiconductor output for TI
and other co-venturers. As a result, TI expects to recover its cost of the
ventures through sale of the semiconductor output, and is amortizing its cost
of the ventures over the expected initial output period of 3 to 5 years, and
recognizing its share of any cumulative venture net losses in excess of
amortization. The related expense charged to operations was $15 million in
1995, $15 million in 1994 and $27 million in 1993.
Property, Plant and Equipment at Cost
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
Depreciable Lives 1995 1994
---------------------------------------
Land.............................. $ 76 $ 82
Buildings and improvements........ 5-40 years 1,969 1,777
Machinery and equipment........... 3-10 years 3,586 3,036
------------------
Total............................. $5,631 $4,895
==================
Authorizations for property, plant and equipment expenditures in future years
were approximately $1,654 million at December 31, 1995 and $816 million at
December 31, 1994.
Accounts Payable and Accrued Expenses
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
1995 1994
-------------------
Accounts payable....................................... $1,110 $ 678
Advance payments from commercial and defense
contract customers................................... 210 205
Accrued salaries, wages, severance and vacation pay.... 424 367
Other accrued expenses and liabilities................. 829 627
-------------------
Total.................................................. $2,573 $1,877
===================
Long-Term Debt and Lines of Credit
- ---------------------------------------------------------------------------
Millions of Dollars
-------------------
1995 1994
-------------------
2.75% convertible subordinated debentures due 2002..... $ 103 $ 124
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
3.98% to 6.10% Italian lira mortgage notes
(38% swapped for 1.60% U.S. dollar obligation)....... 104 87
Other.................................................. 10 9
-------------------
817 820
Less current portion long-term debt.................... 13 12
-------------------
Long-term debt......................................... $ 804 $ 808
===================
The convertible subordinated debentures may be redeemed at the company's
option at specified prices. The debentures are convertible at the holder's
option into an aggregate 2,493,031 shares of TI common stock at a common stock
conversion price of $41.4375 per share.
A portion of the coupon rates for the notes due 1999, 2001, 2003 and 2007 have
been swapped for commercial-paper-based or LIBOR-based variable rates through
April 1997, resulting in a combination of fixed plus short-term variable rates
for an effective interest rate of approximately 9.5% and 9.6% as of
December 31, 1995 and 1994. The 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 2005. The mortgage notes
are collateralized by real estate and building equipment.
Interest incurred on loans in 1995, 1994 and 1993 was $69 million, $58 million
and $55 million. Of these amounts, $21 million in 1995, $13 million in 1994
and $8 million in 1993 were capitalized as a component of capital asset
construction costs. Interest paid on loans (net of amounts capitalized) was
$48 million in 1995, $53 million in 1994 and $54 million in 1993.
Aggregate maturities of long-term debt due during the four years subsequent to
December 31, 1996, are as follows:
Millions of Dollars
-------------------
1997.................................................... $ 14
1998.................................................... 18
1999.................................................... 168
2000.................................................... 19
Unused lines of credit for short-term financing were approximately $538
million at December 31, 1995 and $547 million at December 31, 1994. Of these
amounts, $440 million were available to support commercial paper borrowings.
Financial Instruments and Risk Concentration
- ------------------------------------------------------------------------------
Financial instruments: In addition to the swaps discussed in the preceding
note, as of December 31, 1995, the company has forward currency exchange
contracts outstanding of $303 million to hedge net balance sheet exposures
(including $78 million to buy deutsche mark, $40 million to buy Singapore
dollars, and $36 million to buy yen) and $89 million to hedge specific firm
commit-
1995 ANNUAL REPORT 31 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Notes to Financial Statements
(continued)
ments for multi-year product sale transactions denominated in pound
sterling. At December 31, 1994, the company had forward currency exchange
contracts outstanding of $314 million to hedge net balance sheet exposures
(including $64 million to buy yen, $47 million to buy deutsche mark, and $39
million to buy Singapore dollars) and $116 million to hedge specific firm
commitments for multi-year product sale transactions denominated in pound
sterling. As of December 31, 1995 and 1994, the carrying amounts and current
market settlement values of these swaps and forward contracts were not
significant, except for the interest rate swaps for the notes due 1999, 2001,
2003 and 2007 for which the year-end 1995 and 1994 carrying amounts are a
liability of $1 million and $2 million and the settlement values are a
liability of approximately $3 million and $34 million.
The forward currency exchange contracts, including the currency interest rate
swaps for the Italian lira mortgage notes, are used to minimize the adverse
impacts from the effect of exchange rate fluctuations on the company's non-
U.S. net balance sheet exposures (predominantly receivables, payables and
accrued expenses) and specific commitments to purchase or sell products. The
interest rate swaps for the company's notes due 1999, 2001, 2003 and 2007 are
used to change the characteristics of the interest rate stream on the debt
from fixed rates to a combination of fixed plus short-term variable rates in
order to achieve a mix of interest rates which, over time, is expected to
moderate financing costs. The effect of these interest rate swaps was to
increase interest expense by $6 million in 1995 and reduce interest expense by
$8 million and $12 million in 1994 and 1993. These interest rate swaps are
sensitive to interest rate changes. If short-term interest rates increase
(decrease) by one percentage point from year-end 1995 rates, annual interest
expense would increase (decrease) by $6 million.
In order to minimize its exposure to credit risk, the company limits its
counterparties on the forward currency exchange contracts and interest rate
swaps to investment-grade rated financial institutions.
As of December 31, 1995 and 1994, the fair value of long-term debt, based on
current interest rates, was approximately $902 million and $830 million,
compared with the carrying amount of $817 million and $820 million.
Prior to 1995 the company had 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 $125 million at December 31, 1994, and $175 million at
December 31, 1993, representing receivables sold. The related discount
expense, which varied with commercial paper rates, is included in other income
(expense) net. In January 1995, the company reduced the outstanding balance
to zero and terminated the agreement.
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 securities 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 accounts receivable.
Stockholders' Equity
- ------------------------------------------------------------------------------
The company is authorized to issue 10,000,000 shares of preferred stock.
Prior to 1994, the company had three series of preferred stock outstanding:
market auction preferred stock (average dividends declared per share in 1993
were $2,564); money market preferred stock (average dividends declared per
share in 1993 were $2,729); and Series A conversion preferred stock. By the
end of 1993 all preferred shares had been redeemed by the company and none are
currently outstanding.
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
--------------------
1995 1994 1993
--------------------
Research and development expense.................... $927 $689 $590
Other Income (Expense) Net
- ------------------------------------------------------------------------------
Millions of Dollars
--------------------
1995 1994 1993
--------------------
Interest income..................................... $ 87 $ 51 $ 31
Other income (expense) net.......................... (14) (47) (16)
--------------------
Total............................................... $ 73 $ 4 $ 15
====================
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 1984 and 1988 Stock Option
Plans; however, no further options
TEXAS INSTRUMENTS INCORPORATED 32 1995 ANNUAL REPORT
AND SUBSIDIARIES
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 8,000,000 shares
of the company's common stock; in addition, if any option under the 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.
The FASB has recently issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which provides in the future for either recognition or
disclosure of a hypothetical charge for stock options. The company does not
intend to record this hypothetical charge, but will instead provide the
disclosure in next year's annual report.
Stock option transactions during 1995, 1994 and 1993 were as follows:
Long-Term Employees
Incentive Stock Option Option
and Stock Purchase Price Range
Option Plans Plan Per Share
-----------------------------------------------
Balance, Dec. 31, 1992....... 9,614,954 1,604,446 $15.37 - $30.29
Granted.................... 1,720,000 877,606*
Terminated................. 318,300 171,468*
Exercised**............ 2,112,158 1,273,972 $16.41 - $27.31
------------------------
Balance, Dec. 31, 1993....... 8,904,496 1,036,612 $15.37 - $32.85
Granted.................... 1,719,500 685,124*
Terminated................. 99,202 141,958*
Exercised**............ 2,365,240 630,996 $15.37 - $32.85
-------------------------
Balance, Dec. 31, 1994....... 8,159,554 948,782 $15.42 - $41.07
Granted.................... 2,911,760 982,948*
Terminated................. 118,364 110,485*
Exercised**............ 3,070,378 687,536 $15.42 - $41.07
-------------------------
Balance, Dec. 31, 1995....... 7,882,572 1,133,709 $16.41 - $81.19
=========================
Exercisable at Dec. 31, 1994 4,531,406 311,624
Exercisable at Dec. 31, 1995 3,800,846 198,802
- ---------------
* Excludes options offered but not accepted.
** Includes previously unissued shares and treasury shares of 3,656,872
and 101,042; 2,938,686 and 57,550; and 3,329,264 and 56,866 for 1995,
1994 and 1993.
Common share and option price amounts have been retroactively adjusted for the
two-for-one stock split in 1995.
At year-end 1995, 2,508,756 shares were available for future grants under the
Long-Term Incentive Plan and 2,686,495 shares under the Employees Stock Option
Purchase Plan approved in 1988. As of year-end 1995, 10,820,760 shares were
reserved for issuance under the company's stock option and incentive plans and
3,820,204 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 1995, 1994 and 1993 were 135,001 shares, 59,198 shares and 55,525
shares. Previously unissued common shares issued under the Annual Incentive
Plan in 1995, 1994 and 1993 were 16,386 shares, 46,330 shares and 207,852
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 $324 million in 1995, $175 million
in 1994 and $83 million in 1993. Under the plans, unless otherwise provided
by local law, the company and certain of its subsidiaries contribute a portion
of their net profits equal to 25% of the amount by which consolidated income
(as defined) before profit sharing and income taxes exceeds 8% of the
company's consolidated average assets for the year. Unless otherwise provided
by local law, contributions are invested as follows. For worldwide profit
sharing earned by eligible participants in 1993 and prior, the contributions
have been invested in TI common stock. Subsequent to 1993, certain changes to
the profit sharing plans have been made to align them more closely with
applicable industry practices. For profit sharing earned by U.S. employees in
1994 and thereafter, several investment options in addition to TI common stock
have been made available. And, for 1995 and thereafter, a majority of the
profit sharing plans worldwide have been changed so that, depending on the
individual plan, from 50% to 100% of the profit sharing earned by employees is
not contributed to a deferred plan but is paid as cash to the eligible
participants.
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; 4,616,918 of such shares were available for future
issuance at December 31, 1995.
1995 ANNUAL REPORT 33 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Notes to Financial Statements
(continued)
The trustees of the profit sharing plans purchased 4,762,460 outstanding
shares of TI common stock in 1995 (1,881,815 shares in 1994 and 626,670 shares
in 1993) and no previously unissued shares in 1995 (403,945 shares in 1994 and
209,464 shares in 1993) for use in the profit sharing plans and savings
program.
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 $22 million in 1995, $21 million in 1994 and $21 million in 1993.
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
--------------------
1995 1994 1993
--------------------
Service cost - benefits earned during the period..... $ 47 $ 54 $ 59
Interest cost on projected benefit obligation........ 69 69 72
Return on plan assets:
Actual return...................................... (130) 16 (99)
Deferral........................................... 72 (74) 44
Net amortization..................................... (7) (4) (2)
--------------------
U.S. pension expense................................. $ 51 $ 61 $ 74
====================
The funded status of the U.S. plan was as follows:
Millions of Dollars
-------------------
1995 1994
-------------------
Actuarial present value at Dec. 31 of:
Vested benefit obligation.......................... $ (691) $(523)
===================
Accumulated benefit obligation..................... $ (785) $(575)
===================
Projected benefit obligation....................... $(1,179) $(818)
Plan assets at fair value............................ 825 724
-------------------
Projected benefit obligation in excess of
plan assets........................................ (354) (94)
Unrecognized net asset from initial
application of SFAS 87............................. (65) (78)
Unrecognized net (gain) loss......................... 139 (121)
Unrecognized prior service cost...................... 35 41
-------------------
Accrued pension at Dec. 31........................... (245) (252)
Less current portion................................. 61 54
-------------------
Accrued U.S. pension costs........................... $ (184) $(198)
===================
The projected benefit obligations for 1995 and 1994 were determined using
assumed discount rates of 7.0% and 8.5% and an assumed average long-term pay
progression rate of 4.25%. 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
--------------------
1995 1994 1993
--------------------
Service cost - benefits earned during the period..... $ 59 $ 56 $ 44
Interest cost on projected benefit obligations....... 38 32 28
Return on plan assets:
Actual return...................................... (32) (15) (50)
Deferral........................................... (3) (15) 25
Net amortization..................................... 10 11 8
--------------------
Non-U.S. pension expense............................. $ 72 $ 69 $ 55
====================
The funded status of the non-U.S. plans was as follows:
Millions of Dollars
-------------------
1995 1994
-------------------
Actuarial present value at Sept. 30 of:
Vested benefit obligations.......................... $(523) $(424)
===================
Accumulated benefit obligations..................... $(619) $(493)
===================
Projected benefit obligations....................... $(873) $(693)
Plan assets at fair value............................. 448 398
-------------------
Projected benefit obligations in excess of
plan assets......................................... (425) (295)
Unrecognized net liabilities from initial
application of SFAS 87.............................. 21 24
Unrecognized net loss................................. 253 148
Unrecognized prior service cost....................... 5 6
-------------------
Accrued non-U.S. pension at Sept. 30.................. (146) (117)
Additional minimum liability.......................... (56) (9)
Adjustments from Sept. 30 to Dec. 31.................. (5) -
Less prepaid pension costs at Dec. 31................. 12 12
-------------------
Accrued pension at Dec. 31............................ (219) (138)
Less current portion.................................. 12 10
-------------------
Accrued non-U.S. pension costs........................ $(207) $(128)
===================
TEXAS INSTRUMENTS INCORPORATED 34 1995 ANNUAL REPORT
AND SUBSIDIARIES
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 3.25%
to 8.0% in 1995 and 4.75% to 8.0% in 1994 and a range of assumed average long-
term pay progression rates of 3.5% to 6.0% in 1995 and 4.0% to 6.0% in 1994.
The range of assumed long-term rates of return on plan assets was 8.0% to
9.0%. Accrued pension at December 31 includes approximately $101 million in
1995 and $83 million in 1994 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 fair 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, 1995 and 1994, the company has
recorded an additional non-U.S. minimum pension liability of $56 million and
$9 million and, for 1995, an equity reduction of $45 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
obligations of U.S. states and municipalities.
Effective January 1, 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which required
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 1993 charge of $294 million ($1.57 per share) for the cumulative
effect of the accounting change.
Expense of the retiree health care benefit plan includes the following
components:
Millions of Dollars
--------------------
1995 1994 1993
--------------------
Service cost - benefits earned during the period..... $ 6 $ 6 $ 6
Interest cost on accumulated postretirement
benefit obligation................................. 37 36 35
Return on plan assets:
Actual return...................................... (4) (3) (1)
Deferral........................................... 1 3 1
--------------------
Retiree health care benefit expense.................. $ 40 $ 42 $ 41
====================
The funded status of the plan was as follows:
Millions of Dollars
-------------------
1995 1994
-------------------
Actuarial present value at Dec. 31 of accumulated
postretirement benefit obligation:
Retirees.......................................... $ (356) $ (337)
Fully eligible employees.......................... (21) (12)
Other employees................................... (118) (104)
-------------------
(495) (453)
-------------------
Plan assets at fair value............................. 44 23
-------------------
Accumulated postretirement benefit obligation
in excess of plan assets............................ (451) (430)
Unrecognized net (gain) loss.......................... 9 (16)
Unrecognized prior service cost....................... (11) (12)
-------------------
Accrued at Dec. 31.................................... (453) (458)
Less current portion.................................. 43 44
-------------------
Accrued retiree health care benefit costs............. $ (410) $ (414)
===================
Retiree health care benefit amounts were determined using health care cost
trend rates of 8.1% for 1996 decreasing to 6.0% by 1999, and assumed discount
rates of 7.0% for 1995 and 8.5% for 1994. Increasing the health care cost
trend rates by 1% would have increased the accumulated postretirement benefit
obligation at December 31, 1995 by $32 million and 1995 plan expense by
$2 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%.
Special actions: In the first quarter of 1994, the company took a pretax
charge of $83 million for restructuring of its European operations from the
traditional country-by-country approach to business centers with pan-European
responsibilities. This action primarily affected semiconductor activities and
is expected to result in annual savings of approximately $54 million when
fully implemented. Also taken in the first quarter was a pretax charge of
$49 million for costs related to the divestiture of nonstrategic product
lines, primarily in digital products. The total charges of $132 million
included non-cash asset write-downs of $31 million with the balance for
expected cash outlays, including $62 million for severance. The divestitures
were essentially completed by the end of 1994. Completion of the
restructuring action, which was delayed due to extended negotiations with
certain European works councils, was essentially completed by the end of 1995.
Of the total expected cash outlays, $41 million was expended during 1994 with
the balance substantially expended in 1995. Of the approximately 1,000
employees, primarily in Europe, affected by the severance actions, 383 left
the company during 1994, and most of those remaining left in 1995.
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 and their markets consist of
the following: components (semiconductors, such as integrated circuits,
discrete devices
1995 ANNUAL REPORT 35 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Notes to Financial Statements
(continued)
and subassemblies, and electrical and electronic control devices) which are
sold primarily to original equipment manufacturers principally through the
company's own marketing organizations and to a lesser extent through
distributors; defense systems and 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) which are sold to the U.S. government (either directly or
through prime contractors) and to international customers approved by the U.S.
government; digital products (such as software productivity tools, mobile
computing products, printers, and electronic calculators) which are marketed
through various channels, including system suppliers, business equipment
dealers, distributors, retailers, and direct sales to end-users and original
equipment manufacturers. Subsequent to year-end 1995, the company reached an
agreement to sell substantially all of its custom manufacturing services
business, which is part of the digital products segment. The company also
produces metallurgical materials (including clad metals, precision-engineered
parts and electronic connectors) which are primarily sold directly to original
equipment manufacturers.
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
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. Beginning the fourth quarter of 1995, for
geographic area purposes responsibility for certain interarea product
transfers was changed consistent with the company's new pan-European
operations approach. The effect of this change on 1995 geographic area
results was to increase Europe profits and decrease U.S. profits by
approximately $70 million. Additionally, prior to 1995, for geographic area
purposes U.S. interarea product transfers for further processing were recorded
as cost credits. In 1995, such transfers are recorded as interarea revenues.
The effect of this change was to increase 1995 U.S. interarea revenues by
approximately $960 million. Prior to 1994, for geographic area purposes
research and development expense was allocated based on revenues. In 1994,
research and development expense is generally reported in the geographic area
where incurred. The effect of this change on 1994 geographic area results was
to decrease U.S. profits by $144 million, decrease Europe losses by $28
million, increase East Asia profits by $113 million and increase other areas
profit by $3 million. 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
---------------------------
1995 1994 1993
---------------------------
Components
Trade....................................... $ 9,420 $ 6,787 $ 5,091
Intersegment................................ 60 56 66
---------------------------
9,480 6,843 5,157
---------------------------
Defense Systems and Electronics
Trade....................................... 1,718 1,710 1,842
Intersegment................................ 22 17 14
---------------------------
1,740 1,727 1,856
---------------------------
Digital Products
Trade....................................... 1,829 1,661 1,454
Intersegment................................ 23 1 4
---------------------------
1,852 1,662 1,458
---------------------------
Metallurgical Materials
Trade....................................... 160 152 126
Intersegment................................ 23 25 19
---------------------------
183 177 145
---------------------------
Eliminations and other........................ (127) (94) (93)
---------------------------
Total......................................... $13,128 $10,315 $ 8,523
===========================
Net revenues directly from federal government agencies in the United States,
principally related to the defense systems and electronics segment, were
$1,019 million in 1995, $1,009 million in 1994 and $1,031 million in 1993.
Industry Segment Profit (Loss)
- ---------------------------------------------------------------------------
Millions of Dollars
-----------------------
1995 1994 1993
-----------------------
Components........................................ $1,830 $1,101 $ 689
Defense Systems and Electronics................... 172 172 188
Digital Products.................................. (59) 62 34
Metallurgical Materials........................... 2 (8) (4)
Eliminations and corporate items.................. (326) (285) (211)
-----------------------
Income before provision for income taxes and
cumulative effect of accounting changes......... $1,619 $1,042 $ 696
=======================
Industry Segment Identifiable Assets
- ----------------------------------------------------------------------------
Millions of Dollars
------------------------
1995 1994 1993
------------------------
Components........................................ $5,199 $3,655 $3,016
Defense Systems and Electronics................... 877 731 821
Digital Products.................................. 930 756 718
Metallurgical Materials........................... 88 76 68
Eliminations and corporate items.................. 2,121 1,771 1,370
------------------------
Total............................................. $9,215 $6,989 $5,993
========================
TEXAS INSTRUMENTS INCORPORATED 36 1995 ANNUAL REPORT
AND SUBSIDIARIES
Industry Segment Property, Plant and Equipment
- ----------------------------------------------------------------------------
Millions of Dollars
------------------------
Depreciation 1995 1994 1993
- ------------ ------------------------
Components...................................... $ 612 $ 514 $ 462
Defense Systems and Electronics................. 84 97 104
Digital Products................................ 23 24 23
Metallurgical Materials......................... 11 10 10
Eliminations and corporate items................ 26 20 18
------------------------
Total............................................. $ 756 $ 665 $ 617
========================
Millions of Dollars
------------------------
Additions 1995 1994 1993
- --------- ------------------------
Components...................................... $1,207 $ 888 $ 545
Defense Systems and Electronics................. 116 96 92
Digital Products................................ 32 42 37
Metallurgical Materials......................... 14 9 16
Eliminations and corporate items................ 70 41 40
------------------------
Total............................................. $1,439 $1,076 $ 730
========================
The following geographic area data include revenues, costs and expenses
generated by and assets employed in operations located in each area:
Geographic Area Net Revenues
- ----------------------------------------------------------------------------
Millions of Dollars
---------------------------
1995 1994 1993
---------------------------
United States
Trade....................................... $ 6,757 $ 5,943 $ 5,314
Interarea................................... 1,467 457 449
---------------------------
8,224 6,400 5,763
---------------------------
Europe
Trade....................................... 2,182 1,574 1,281
Interarea................................... 389 253 238
---------------------------
2,571 1,827 1,519
---------------------------
East Asia
Trade....................................... 4,122 2,729 1,860
Interarea................................... 1,822 1,525 1,223
---------------------------
5,944 4,254 3,083
---------------------------
Other Areas
Trade....................................... 67 69 68
Interarea................................... 59 50 51
---------------------------
126 119 119
---------------------------
Eliminations.................................. (3,737) (2,285) (1,961)
---------------------------
Total......................................... $13,128 $10,315 $ 8,523
===========================
Geographic Area Profit (Loss)
- ----------------------------------------------------------------------------
Millions of Dollars
------------------------
1995 1994 1993
------------------------
United States..................................... $1,204 $1,018 $ 743
Europe............................................ 230 (12) 33
East Asia......................................... 287 219 63
Other Areas....................................... (2) 5 -
Eliminations and corporate items.................. (100) (188) (143)
------------------------
Income before provision for income taxes and
cumulative effect of accounting changes......... $1,619 $1,042 $ 696
========================
Geographic Area Identifiable Assets
- ----------------------------------------------------------------------------
Millions of Dollars
------------------------
1995 1994 1993
------------------------
United States..................................... $3,959 $2,965 $2,589
Europe............................................ 1,299 889 897
East Asia......................................... 2,163 1,616 1,310
Other Areas....................................... 46 43 42
Eliminations and corporate items.................. 1,748 1,476 1,155
------------------------
Total............................................. $9,215 $6,989 $5,993
========================
Income Taxes
- -----------------------------------------------------------------------------
Effective January 1, 1993, the company adopted SFAS No. 109, "Accounting for
Income Taxes," which required 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
1993 credit of $290 million ($1.54 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
---------------------------------------------
1995........................ $1,204 $ 515 $(100) $1,619
1994........................ 1,018 212 (188) 1,042
1993........................ 743 96 (143) 696
With the exception of interarea elimination of unrealized profit in assets,
which increased $5 million in 1995, increased $18 million in 1994, and
increased $1 million in 1993, the remaining corporate items consist primarily
of general corporate expenses which are applicable to both U.S. and non-U.S.
operations. These expenses are generally deductible for tax purposes in the
U.S.
Provision (Credit) for Income Taxes
- ----------------------------------------------------------------------------
Millions of Dollars
--------------------------------------------
U.S. Federal Non-U.S. U.S. State Total
--------------------------------------------
1995
- ----
Current........................ $ 357 $ 190 $ 30 $ 577
Deferred....................... (29) (19) 2 (46)
--------------------------------------------
Total.......................... $ 328 $ 171 $ 32 $ 531
============================================
1994
- ----
Current........................ $ 249 $ 95 $ 19 $ 363
Deferred....................... 4 (18) 2 (12)
--------------------------------------------
Total.......................... $ 253 $ 77 $ 21 $ 351
============================================
1993
- ----
Current........................ $ 168 $ 96 $ 15 $ 279
Deferred....................... (39) (17) (3) (59)
--------------------------------------------
Total.......................... $ 129 $ 79 $ 12 $ 220
============================================
1995 ANNUAL REPORT 37 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Notes to Financial Statements
(continued)
Principal reconciling items from income tax computed at the statutory federal
rate follow.
Millions of Dollars
-----------------------
1995 1994 1993
-----------------------
Computed tax at statutory rate..................... $ 567 $ 365 $ 244
Effect of increase in tax rate on net
deferred tax assets.............................. - - (17)
Effect of non-U.S. rates........................... (86) (42) (3)
Research and experimentation tax credits........... (5) (3) (8)
Effect of U.S. state income taxes.................. 19 14 10
Other.............................................. 36 17 (6)
-----------------------
Total provision for income taxes................... $ 531 $ 351 $ 220
=======================
Included in the effect of non-U.S. rates for 1995 and 1994 is a $93 million
and a $69 million benefit from tax loss carryforward utilization reduced by
certain non-U.S. taxes and losses for which no benefit was recognized.
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 $600 million at December 31, 1995) 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
-------------------
1995 1994
-------------------
Deferred income tax assets:
Accrued retirement costs
(pension and retiree health care)................ $ 276 $ 264
Inventories and related reserves................... 232 227
Accrued expenses................................... 234 155
Long-term contracts................................ 43 50
Loss carryforwards................................. 51 138
Other.............................................. 188 165
-------------------
1,024 999
-------------------
Less valuation allowance............................. (192) (330)
-------------------
832 669
-------------------
Deferred income tax liabilities:
Property, plant and equipment...................... (150) (95)
Other.............................................. (94) (32)
-------------------
(244) (127)
-------------------
Net deferred income tax asset........................ $ 588 $ 542
===================
As of December 31, 1995 and 1994, the net deferred income tax asset of $588
million and $542 million was presented in the balance sheet, based on tax
jurisdiction, as deferred income tax assets of $682 million and $580 million
and deferred income tax liabilities of $94 million and $38 million. The
valuation allowance shown above reflects the company's ongoing 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 has aggregate non-U.S. tax loss carryforwards of approximately
$121 million. Of this amount, $73 million expires through the year 2005 and
$48 million has no expiration.
Income taxes paid were $384 million, $399 million and $231 million for 1995,
1994 and 1993.
Rental Expense and Lease Commitments
- ------------------------------------------------------------------------------
Rental and lease expense was $153 million in 1995, $145 million in 1994 and
$132 million in 1993. 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, 1995, the company was committed under non-cancelable leases
with minimum rentals in succeeding years as follows:
Non-Cancelable Leases
- -----------------------------------------------------------------------------
Millions of Dollars
-------------------
1996.................................... $ 114
1997.................................... 86
1998.................................... 58
1999.................................... 46
2000.................................... 40
Later years............................. 186
Common Stock Prices and Dividends (unaudited)
- -----------------------------------------------------------------------------
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. Stock prices and dividends have been retroactively adjusted for the
two-for-one stock split in 1995.
Quarter
---------------------------------
1st 2nd 3rd 4th
---------------------------------
Stock prices:
1995 High.......................... $49.00 $72.00 $83.75 $81.25
Low........................... 34.38 43.38 66.50 46.00
1994 High.......................... 44.75 42.88 43.75 40.32
Low........................... 30.50 31.63 32.88 31.69
Dividends paid:
1995............................... $ .125 $ .125 $ .17 $ .17
1994............................... $ .09 $ .09 $ .125 $ .125
TEXAS INSTRUMENTS INCORPORATED 38 1995 ANNUAL REPORT
AND SUBSIDIARIES
Quarterly Financial Data (unaudited)
- -------------------------------------------------------------------------
Millions of Dollars, Except Per-Share Amounts
---------------------------------------------------------------------
1994 1995
---------------------------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
---------------------------------------------------------------------
Net revenues...................... $2,449 $2,510 $2,574 $2,782 $2,862 $3,238 $3,425 $3,603
Gross profit...................... 662 708 722 752 827 971 979 1,032
Profit from operations............ 209 292 291 291 344 403 437 409
Income before provision for
income taxes.................... 204 277 281 280 348 410 431 430
Net income........................ 134 184 186 188 230 278 289 291
---------------------------------------------------------------------
Earnings per common and common
equivalent share................ $ .71 $ .97 $ .97 $ .99 $ 1.21 $ 1.44 $ 1.48 $ 1.50
=====================================================================
Earnings per common and common equivalent share are based on average common
and common equivalent shares outstanding (194,676,703 shares and 190,263,825
shares for the fourth quarters of 1995 and 1994).
- ------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
Texas Instruments Incorporated
We have audited the accompanying consolidated balance sheets of Texas
Instruments Incorporated and subsidiaries (the Company) at December 31, 1995
and 1994, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. 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, 1995 and 1994, and
the results of its operations and cash flows for each of the three years in
the period ended December 31, 1995, 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.
/s/ Ernst & Young LLP
Dallas, Texas
January 22, 1996
1995 ANNUAL REPORT 39 TEXAS INSTRUMENTS INCORPORATED
AND SUBSIDIARIES
Exhibit 21
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF THE REGISTRANT
The following are current subsidiaries of the Registrant.
Subsidiary and Name Under Which Business is Done Where Organized
- ------------------------------------------------ ---------------
Texas Instruments Deutschland G.m.b.H. Germany
Texas Instruments France S.A. France
Texas Instruments Holland B.V. Netherlands
Texas Instruments Hong Kong Limited Hong Kong
Texas Instruments Italia S.p.A. Italy
Texas Instruments Japan Limited Japan
Texas Instruments Limited United Kingdom
Texas Instruments Malaysia Sdn. Bhd. Malaysia
Texas Instruments (Philippines) Incorporated Delaware
Texas Instruments Singapore (Pte) Limited Singapore
Texas Instruments Taiwan Limited Taiwan
TI Information Engineering Limited United Kingdom
Note: The names of other subsidiaries of the Registrant are not listed
herein since the additional subsidiaries considered in the aggregate as a
single subsidiary do not constitute a significant subsidiary as defined by
Rule 1.02(v) of Regulation S-X.
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Texas Instruments Incorporated of our report dated January 22, 1996,
included in the 1995 Annual Report to Stockholders of Texas Instruments
Incorporated.
Our audits also included the financial statement schedule of Texas Instruments
Incorporated listed in Item 14(a). This schedule is the responsibility of the
Registrant's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the following registration
statements, and in the related prospectuses thereto, of our report dated
January 22, 1996 with respect to the consolidated financial statements and
consolidated schedule of Texas Instruments Incorporated, included in or
incorporated by reference in this Annual Report on Form 10-K for the year ended
December 31, 1995: 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. 33-54615 on Form S-8,
Registration Statement No. 33-18509 on Form S-3, and Registration Statement
No. 33-48840 on Form S-3.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Dallas, Texas
February 21, 1996
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 14th day of February, 1996.
/s/ JAMES R. ADAMS
James R. Adams
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 12th day of February, 1996.
/s/ DAVID L. BOREN
David L. Boren
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 12th day of February, 1996.
/s/ JAMES B. BUSEY IV
James B. Busey IV
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 15th day of February, 1996.
/s/ WILLIAM S. LEE
William S. Lee
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 14th day of February, 1996.
/s/ WILLIAM B. MITCHELL
William B. Mitchell
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, her true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for her and in her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 15th day of February, 1996.
/s/ GLORIA M. SHATTO
Gloria M. Shatto
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 15th day of February, 1996.
/s/ WILLIAM P. WEBER
William P. Weber
Exhibit 24
----------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints JERRY R. JUNKINS, WILLIAM A. AYLESWORTH and RICHARD J. AGNICH,
and each of them, with full power to act without the others, his true and
lawful attorneys-in-fact and agents, with full and several power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Texas Instruments
Incorporated for the year ended December 31, 1995, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on this 14th day of February, 1996.
/s/ CLAYTON K. YEUTTER
Clayton K. Yeutter
5
1,000,000
YEAR
DEC-31-1995
DEC-31-1995
1,364
189
2,320
45
1,135
5,518
5,631
2,444
9,215
3,188
804
0
0
190
3,905
9,215
13,128
13,128
9,318
9,318
509
0
48
1,619
531
1,088
0
0
0
1,088
5.63
0
