SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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
---------------------------------------------------------------
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
---- ----
93,172,215
- ------------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding as of March 31, 1995
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
- ------------------------------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts)
For Three Months Ended
----------------------
Mar. 31 Mar. 31
Income 1995 1994
- ------ ------- -------
Net revenues............................................... $ 2,862 $ 2,449
Operating costs and expenses:
Cost of revenues......................................... 2,035 1,787
General, administrative and marketing.................... 370 379
Employees' retirement and profit sharing plans........... 113 74
------- -------
Total.................................................. 2,518 2,240
------- -------
Profit from operations..................................... 344 209
Interest income............................................ 17 11
Other income (expense) net................................. - (5)
Interest on loans.......................................... 13 11
------- -------
Income before provision for income taxes................... 348 204
Provision for income taxes................................. 118 70
------- -------
Net income................................................. $ 230 $ 134
======= =======
Earnings per common and common equivalent share............ $ 2.41 $ 1.41
Cash dividends declared per share of common stock.......... $ 0.25 $ 0.18
Cash Flows
- ----------
Net cash provided by operating activities.................. $ 233 $ 413
Cash flows from investing activities:
Additions to property, plant and equipment............... (223) (205)
Purchases of short-term investments...................... (164) (159)
Sales and maturities of short-term investments........... 268 30
------- -------
Net cash used in investing activities...................... (119) (334)
Cash flows from financing activities:
Dividends paid on common and preferred stock............. (23) (17)
Sales and other common stock transactions................ 26 52
Other.................................................... 27 19
------- -------
Net cash provided by financing activities.................. 30 54
Effect of exchange rate changes on cash.................... 13 1
------- -------
Net increase in cash and cash equivalents.................. 157 134
Cash and cash equivalents, January 1....................... 760 404
------- -------
Cash and cash equivalents, March 31........................ $ 917 $ 538
======= =======
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
(In millions of dollars, except per-share amounts)
Mar. 31 Dec. 31
Balance Sheet 1995 1994
- ------------- ------- -------
Assets
Current assets:
Cash and cash equivalents.......................................... $ 917 $ 760
Short-term investments............................................. 427 530
Accounts receivable, less allowance for losses of
$41 million in 1995 and $37 million in 1994...................... 1,664 1,442
Inventories:
Raw materials.................................................... 282 237
Work in process.................................................. 596 553
Finished goods................................................... 264 318
Less progress billings........................................... (198) (226)
------- -------
Inventories (net of progress billings)......................... 944 882
------- -------
Prepaid expenses................................................... 56 66
Deferred income taxes.............................................. 355 337
------- -------
Total current assets............................................. 4,363 4,017
------- -------
Property, plant and equipment at cost................................ 4,915 4,895
Less accumulated depreciation...................................... (2,327) (2,327)
------- -------
Property, plant and equipment (net).............................. 2,588 2,568
------- -------
Deferred income taxes................................................ 246 243
Other assets......................................................... 224 161
------- -------
Total assets......................................................... $ 7,421 $ 6,989
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 53 $ 12
Accounts payable................................................... 670 678
Accrued and other current liabilities.............................. 1,622 1,509
------- -------
Total current liabilities........................................ 2,345 2,199
------- -------
Long-term debt....................................................... 792 808
Accrued retirement costs............................................. 768 740
Deferred credits and other liabilities............................... 243 203
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 - 93,274,869; 1994 - 92,786,992.............. 93 93
Paid-in capital.................................................... 1,068 1,041
Retained earnings.................................................. 2,119 1,912
Less treasury common stock at cost.
Shares: 1995 - 102,654; 1994 - 104,170........................... (7) (6)
Other.............................................................. -- (1)
------- -------
Total stockholders' equity....................................... 3,273 3,039
------- -------
Total liabilities and stockholders' equity........................... $ 7,421 $ 6,989
======= =======
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Earnings per common and common equivalent share are based on average
common and common equivalent shares outstanding (95.5 and 95.1 million
shares for the first quarters of 1995 and 1994). Shares issuable upon
exercise of dilutive stock options and upon conversion of dilutive
convertible debentures are included in average common and common
equivalent shares outstanding. In computing per-share earnings for the
periods, net income is increased by $1 million for the first quarter of
1994 for interest (net of tax and profit sharing effect) on the
convertible debentures considered dilutive common stock equivalents.
Results for the first quarter 1994 include special pretax charges of
$132 million and one-time royalty revenues of $69 million.
The statements of income, statements of cash flows and balance sheet
at March 31, 1995, are not audited but reflect all adjustments which are
of a normal recurring nature and are, in the opinion of management,
necessary to a fair statement of the results of the periods shown.
4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Record semiconductor revenues and profits in every major geographic
region led the Registrant (the "company" or "TI") to its best quarterly
financial performance ever. The company continues to build shareholder
value, posting a 20.9 percent return on invested capital for the four
quarters ending March 31, 1995.
Based on strength thus far in 1995, TI is raising its estimate of world
semiconductor market growth for the year to 28 percent, up from the 21
percent projected earlier in the year.
Management plans to recommend to the board of directors at its June
meeting an increase of approximately 30 percent in the quarterly dividend
on TI common stock, effective with the July dividend payment.
FINANCIAL SUMMARY
Net revenues for the first quarter of 1995 were $2862 million, up 17
percent from the first quarter of 1994. The increase resulted primarily
from strong growth in semiconductor revenues.
Profit from operations for the quarter was $344 million, compared with
$209 million in the first quarter of 1994. The largest contributor to
TI s profit improvement was higher semiconductor operating profit. Net
income for the quarter was $230 million, compared with $134 million in
the first quarter of 1994. Earnings per share were $2.41, compared with
$1.41 in the first quarter of 1994.
Results for the quarter include several cost-reduction actions, including
previously announced consolidations in TI s custom manufacturing services
and personal productivity products businesses. These costs were more
than offset by favorable adjustments to prior-period accruals for ongoing
royalties because of higher than expected shipments by some licensees.
First-quarter 1994 results included one-time pretax restructuring and
divestiture charges of $132 million and one-time royalty revenues of $69
million.
SEMICONDUCTORS
TI s semiconductor orders set new records in every major geographic
region. Orders were strong across all major product lines, especially
memory. Orders for TI s digital signal processors (DSPs) and mixed-
signal devices continue to grow rapidly.
TI s semiconductor revenues were up strongly from the first quarter of
1994, primarily because of strong memory demand and growth in
application-specific products.
Semiconductor operating profit was up substantially over the first
quarter of last year, with strong contributions from memory and
application-specific products. Operating profit also increased over the
fourth quarter of 1994, with more than half of the increase coming from
application-specific, mixed-signal and advanced system logic products.
Margins improved over both the first and fourth quarters of 1994,
reflecting higher revenues and increased manufacturing productivity.
TI is currently ramping up manufacturing production of microprocessors in
its new semiconductor facility in Dallas. In addition to producing CMOS
5
products on state-of-the-art 8-inch wafers, this facility gives TI a
resource for finalizing the 0.35-micron generation of semiconductor
products, as well as the capability to develop the next generation of
0.25-micron products.
Capacity addition continues at TI s facility in Avezzano, Italy.
Expansions are also under way in the existing joint-venture facilities in
Taiwan, Japan and Singapore. Construction began in the first quarter on
the TwinStar advanced memory manufacturing facility in Richardson, Texas.
TwinStar is a joint venture between TI and Hitachi, Ltd.
DEFENSE ELECTRONICS
TI s defense electronics business maintained stable margins on moderately
lower revenues. During the quarter, the TI/Martin Marietta joint venture
received its second low-rate initial production contract for Javelin
antitank weapon systems. TI also has received a subcontract award for
the Tomahawk baseline improvement, and an Alliant/TI team won the
contract for the Wind-Corrected Munitions Dispenser.
MATERIALS AND CONTROLS
TI s materials and controls business showed solid growth and financial
performance, reflecting strength in the U.S. automotive, climate and
materials markets.
PERSONAL PRODUCTIVITY PRODUCTS
Revenues in TI s personal productivity products business were down
moderately from the first quarter of 1994, and the business operated at a
loss in the quarter. TI s notebook computer product line is
transitioning to a new generation of higher performance models, with
lower prices on the older product line. TI is increasing marketing and
product development investments in this business to strengthen our
position in the growing notebook computer market.
SOFTWARE
Although down seasonally from the fourth quarter of 1994, revenues in
TI s software business were up from the first quarter of 1994. TI is
investing to broaden its product line in software development tools and
expects to begin introducing new tools for object-based applications
development later in the year. TI expects financial performance to be
constrained until these and other new products are released.
SUMMARY AND OUTLOOK
As noted earlier, TI is raising its estimate of world semiconductor
market growth for 1995 to 28 percent, up from the 21 percent projected
earlier in the year.
In addition, TI is seeing signs that the longer term growth rate of the
world semiconductor market may be higher than its historical average of
15 percent per year. These signs include the increasing semiconductor
content in electronic end-equipment as more products become digital;
faster growth of the computer and communications industries as they
become major contributors to the networked society; and rapidly growing
markets in Asia and other parts of the world.
Continued improvement in TI operations is allowing TI to increase
investment in research and development and marketing to capitalize on
emerging growth opportunities, including digital signal processing,
6
digital imaging and wireless communications. TI expects research and
development to be about $850 million in 1995, up from $689 million in
1994 and up from the $800 million announced in January.
Commenting on the long-term outlook, TI Chairman, President and Chief
Executive Officer Jerry R. Junkins said, I believe we are seeing the
birth of a new era at Texas Instruments. The networked society is coming
of age, and our technologies are at the core of the emerging digital
revolution. TI s opportunity goes beyond participating in markets, to
actually creating them, in a way that will produce long-term, sustainable
value for our stockholders.
ADDITIONAL FINANCIAL INFORMATION
Change in orders, Change in net revenues,
Segment 1Q95 vs. 1Q94 1Q95 vs. 1Q94
--------------------- ----------------- ---------------------
Components up 37% up 27%
Defense Electronics up 74% down 8%
Digital Products up 7% up 3%
Total up 37% up 17%
TI s orders for the first quarter of 1995 were $3311 million, compared
with $2415 million in the same period of 1994. Semiconductors accounted
for essentially all of the increase in the components segment. The
increase in defense electronics orders resulted from timing of receipt of
orders on programs moving from development to low-rate initial
production. The increase in digital products orders was in custom
manufacturing services and software.
TI s revenues for the first quarter of 1995 were $2862 million, compared
with $2449 million in the same period of 1994. The increase in
components segment revenues resulted from higher semiconductor revenues
related to increased shipments and new products. Royalty revenues
related to current-quarter licensee shipments were up from a year ago,
but total royalties in the segment were down from the first quarter of
1994 because of the absence of one-time royalties. The decrease in
defense electronics revenues reflected the gradual decline of mature
production programs.
First-quarter 1994 revenues included $69 million in one-time royalties.
There were no one-time royalties in the first quarter of 1995, but there
was a favorable adjustment of $36 million related to higher than
estimated licensee shipments in the second half of 1994. Most of this
amount reflects higher than estimated shipments of dynamic random-access
memory products into the United States by one licensee, whose license
renewal is currently being negotiated. Ongoing royalties in the first
quarter of 1995 were up from the first quarter of 1994 and also from the
fourth quarter of 1994.
Components segment profit increased strongly over the first quarter of
1994, primarily because of improved semiconductor operations.
The digital segment had a small loss for the quarter. Royalties in the
segment increased from the first quarter of 1994. The loss in software
widened from the first quarter of 1994, and personal productivity
products went from a slight profit to a loss on lower revenues,
reflecting the transition to next-generation notebook computers. The
calculator business continues to strengthen, with increased revenues and
improved profitability over the first quarter of 1994.
7
The income tax rate for the first quarter of 1995 was 34.0 percent, which
is the current estimate of the rate for the full year.
TI's financial condition remains strong. During the quarter, cash and
cash equivalents plus short-term investments increased by $54 million to
$1344 million. In January, the company reduced to zero (from $125
million) the outstanding balance of its asset securitization agreement
and terminated this agreement effective January 30, 1995. As noted
above, management intends to recommend to the board of directors at its
June meeting an increase of approximately 30 percent in the quarterly
dividend on TI stock. The cash requirement for a dividend increase of
this amount will be met from cash flow and current cash balances. TI's
debt-to-total-capital ratio was .21 at the end of the first quarter,
unchanged from year-end 1994.
TI s backlog of unfilled orders as of March 31, 1995, was $4346 million,
up $433 million from the end of 1994 and up $575 million from the first
quarter of 1994. Most of the increases were in semiconductors. Defense
electronics backlog also increased.
TI-funded R&D was $213 million in the first quarter of 1995, compared
with $163 million in the same period of 1994. The increase was driven
primarily by investments in differentiated semiconductor products.
Capital expenditures in the first quarter of this year were $223 million,
compared with $205 million in the first quarter of 1994.
Depreciation in the first quarter of 1995 was $176 million, compared with
$154 million in last year s first quarter.
Return on invested capital (ROIC) and return on common equity (ROCE) are
measures TI uses to monitor progress in building shareholder value. For
the four quarters ending March 31, 1995, ROIC was 20.9 percent, and ROCE
was 27.4 percent. In the four quarters ending March 31, 1994, ROIC was
16.1 percent, and ROCE was 25.4 percent.
8
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of
Exhibits in
this Report Description of Exhibit
-------------- -----------------------------
11 Computation of primary and
fully diluted earnings per
common and common equiv-
alent share.
12 Computation of Ratio of
Earnings to Fixed Charges and
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.
27 Financial Data Schedule
(b) Report on Form 8-K
The Registrant filed with the Securities and Exchange
Commission during the quarter ended March 31, 1995 a Form 8-K, dated
January 27, 1995, relating to the 1995 Annual Meeting of Stockholders of
the Registrant.
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TEXAS INSTRUMENTS INCORPORATED
WILLIAM A. AYLESWORTH
Senior Vice President,
Treasurer and
Chief Financial Officer
Date: April 20, 1995
10
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
---------------- ----------------------- --------------
11 Computation of primary and E
fully diluted earnings per
common and common equiv-
alent share.
12 Computation of Ratio of E
Earnings to Fixed Charges and
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.
27 Financial Data Schedule E
EXHIBIT 11
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per-share amounts)
For Three Months Ended
----------------------
Mar. 31 Mar. 31
1995 1994
-------- --------
Net income................................................. $229,990 $133,702
Add:
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted............. 407 661
-------- --------
Adjusted net income........................................ $230,397 $134,363
======== ========
Earnings per Common and Common Equivalent Share:
- ------------------------------------------------
Weighted average common shares outstanding................. 92,838 91,198
Weighted average common equivalent shares:
Stock option and compensation plans.................... 1,127 1,444
Convertible debentures................................. 1,492 2,413
-------- --------
Weighted average common and common equivalent shares..... 95,457 95,055
======== ========
Earnings per Common and Common Equivalent Share............ $ 2.41 $ 1.41
Earnings per Common Share Assuming Full Dilution:
- -------------------------------------------------
Weighted average common shares outstanding................. 92,838 91,198
Weighted average common equivalent shares:
Stock option and compensation plans.................... 1,400 1,460
Convertible debentures................................. 1,492 2,413
-------- --------
Weighted average common and common equivalent shares..... 95,730 95,071
======== ========
Earnings per Common Share Assuming Full Dilution........... $ 2.41 $ 1.41
EXHIBIT 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)
For Three Months
Ended March 31
--------------
1990 1991 1992 1993 1994 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....... $ 14 $(250) $ 433 $ 755 $1,098 $ 218 $ 364
Add interest attributable to
rental and lease expense............. 50 43 42 38 40 10 10
----- ----- ----- ----- ------ ----- -----
$ 64 $(207) $ 475 $ 793 $1,138 $ 228 $ 374
===== ===== ===== ===== ====== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized)..................... $ 47 $ 59 $ 57 $ 55 $ 58 $ 13 $ 17
Interest attributable to rental
and lease expense.................... 50 43 42 38 40 10 10
----- ----- ----- ----- ------ ----- -----
Fixed charges.............................. $ 97 $ 102 $ 99 $ 93 $ 98 $ 23 $ 27
===== ===== ===== ===== ====== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges.......................... $ 97 $ 102 $ 99 $ 93 $ 98 $ 23 $ 27
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis)............. 36 34 55 29 -- -- --
----- ----- ----- ----- ------ ----- -----
Combined fixed charges and
preferred stock dividends............ $ 133 $ 136 $ 154 $ 122 $ 98 $ 23 $ 27
===== ===== ===== ===== ====== ===== =====
Ratio of earnings to fixed charges......... * * 4.8 8.5 11.6 9.9 13.9
===== ===== ===== ===== ====== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends.......................... ** ** 3.1 6.5 11.6 9.9 13.9
===== ===== ===== ===== ====== ===== =====
* Not meaningful. The coverage deficiency was $33 million in 1990 and $309 million in 1991.
** Not meaningful. The coverage deficiency was $69 million in 1990 and $343 million in 1991.
5
1,000,000
DEC-31-1995
MAR-31-1995
3-mos
917
427
1,664
41
944
4,363
4,915
2,327
7,421
2,345
792
0
0
93
3,180
7,421
2,862
2,862
2,035
2,035
113
0
13
348
118
230
0
0
0
230
2.41
0
